Moving expense reimbursements

Definition

Moving expense reimbursements are payments made by employers to cover the costs associated with relocating an employee for work purposes. These reimbursements can include expenses for moving household goods, transportation, and travel. While they provide financial relief to employees during relocation, their tax treatment can vary based on specific regulations and the nature of the reimbursement.

5 Must Know Facts For Your Next Test

1. As of the Tax Cuts and Jobs Act of 2017, moving expense reimbursements are generally considered taxable income for most employees, except for active-duty members of the military.
2. Employers may provide moving expense reimbursements as part of a relocation package to attract and retain talent, often including various types of expenses such as storage and travel costs.
3. Employees receiving moving expense reimbursements should be aware that these payments must be reported on their tax returns, which could increase their overall tax liability.
4. Certain moving expenses can still be deductible for employees who qualify under specific rules, allowing them to reduce their taxable income despite receiving reimbursements.
5. The treatment of moving expense reimbursements can vary by state, as some states may have different rules regarding taxability and deductions compared to federal regulations.

Review Questions

• What are the implications of the Tax Cuts and Jobs Act of 2017 on moving expense reimbursements for employees?
  • The Tax Cuts and Jobs Act of 2017 significantly changed the treatment of moving expense reimbursements by making them taxable income for most employees. This means that employees who receive such reimbursements must report them as income on their tax returns, leading to a potential increase in their overall tax liability. The only exceptions apply to active-duty members of the military who may still deduct qualifying moving expenses.
• How do qualified moving expenses differ from taxable moving expense reimbursements in terms of IRS requirements?
  • Qualified moving expenses refer to those costs that meet IRS criteria for deduction, allowing taxpayers who have undergone a qualifying move to reduce their taxable income. In contrast, taxable moving expense reimbursements are payments made by employers that do not qualify for the same deductions. Understanding these distinctions is important because it affects how employees should report their income and what deductions they may claim on their taxes.
• Evaluate how employers can structure moving expense reimbursements to benefit both themselves and their employees while considering tax implications.
  • Employers can structure moving expense reimbursements by clearly outlining which expenses are covered and ensuring compliance with IRS guidelines. By focusing on qualified moving expenses that may allow for deductions or reduced taxable income for employees, employers can enhance the attractiveness of relocation packages without significantly increasing tax burdens. Additionally, offering lump-sum payments or direct payments to service providers may simplify the process while providing clarity on what is taxable, thus benefiting both parties in terms of financial management.

Related terms

Qualified Moving Expenses: Expenses that meet certain criteria set by the IRS and can be deducted by taxpayers if they meet the requirements for a qualifying move.

Taxable Fringe Benefits: Benefits provided by an employer that are subject to income and payroll taxes, which may include certain moving expense reimbursements depending on specific conditions.

Employee Business Expenses: Expenses incurred by employees that are necessary for their job but not reimbursed by their employer, which may include some moving-related costs.