Overview: In today's job market, many people are accepting jobs that are farther from home than ever before. Others are willing to travel farther than they normally would or even to move their families to hold on to their current job if their employer relocates or asks them to work at a different office or branch. Employers can help lessen the cost of such moves and retain top talent by reimbursing such employees for some of their moving expenses on a tax-free basis.
Employers may reimburse employees tax-free only for moving expenses that are considered qualified under the Internal Revenue Code (IRC). Employer moving expense reimbursements are qualified if they are received by employees, directly or indirectly, for work related moving expenses that the employees could deduct on their personal income tax return if they had paid for the expenses themselves. Qualified moving expense reimbursements include the value of move related services furnished in-kind to employees.
The following additional rules of time and distance must be met for the reimbursements to be tax-free:
Further, the employer must reasonably believe when the reimbursements are made that the employee(s) will meet the time and distance tests, even if the employer's belief later turns out to be wrong.
Before they can be reimbursed, employees must substantiate their moving expenses under the accountable plan rules of the IRC. In addition, only certain types of reasonable moving expenses may be reimbursed tax-free, such as expenses of moving household goods and personal property, direct traveling expenses, including lodging, but not food, from the prior home to the new home, among several others.
Note that some states have different rules regarding tax-free moving expense reimbursements.
Author: Rena Pirsos, JD, Legal Editor
The IRS has announced in Notice 2018-75 that, for federal income and employment tax purposes, reimbursements or payments an employer makes in 2018 to an employee or a moving company for qualified moving expenses incurred in 2017 are not taxable wages.
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