Moving Deductions are Kaput

Article Highlights:

• Prior Law Deduction

• Deduction Repealed

• Military Exception

• Employer Reimbursement

• Reimbursement Gross Up

Prior to the passage of tax reform, individuals who moved as the result of a job change or job relocation could deduct their unreimbursed moving expenses if the driving distance from their home to the new job location was at least 50 miles more than the driving distance from home to the old job location. There was also a requirement that the individual work in the new location for a specified minimum period of time after the move.

Unfortunately, tax reform effectively repealed that deduction after 2017, except for members of the Armed Forces on active duty who move pursuant to a military order. On top of that, if an employer reimburses the employee for the expenses—whether by paying a moving van company, airline, or other vendor directly, or by reimbursing the employee for their moving expenses—the reimbursement will be treated as taxable wages subject to withholding of income, Medicare, and Social Security taxes.

If a move is required by an employer, there is a possible workaround by having the employer include enough in the reimbursement to cover the taxes the employee will incur as a result of the reimbursement. This is commonly referred to as gross up, and the additional amount paid to cover the taxes is also taxable. Thus, the additional tax must be recomputed several times in order to determine the exact reimbursement.

If you need assistance in determining the gross up reimbursement, please give this office a call.