What are the tax consequences of paying for an employee's job-related moving expenses?
Author: Alice Gilman
Under the 2017 federal tax reform law, the income exclusion for qualified moving expenses is suspended and moving expense reimbursements are taxable to employees from January 1, 2018, through December 31, 2025, except for members of the US Armed Forces on active duty and their family members. If an employer chooses to reimburse an employee's qualified moving expenses on a tax-free basis, the employer must gross-up the reimbursement.
Before the tax reform law, a qualified moving expense reimbursement included any employer reimbursement of employees, directly or indirectly, for work related moving expenses that employees could deduct if they had paid for the expenses themselves. Qualified moving expense reimbursements included the value of services furnished in-kind to employees. A move had to meet certain tests of time and distance to have tax-favored status.
Unless this suspension is extended by subsequent legislation, effective January 1, 2026, qualified moving expense reimbursements will again be tax free for employees as they were prior to enactment of the tax reform law.
However, the IRS concluded in Notice 2018-75 that employer reimbursements of qualified moving expenses in 2018 for moves made by employees in 2017 remain tax-free.