Qualified moving expense tax treatment for employees has changed under the Tax Cuts and Jobs Act (TCJA). The transition started in 2018, but taxpayers are still being blindsided by what’s no longer covered.
Through 2025, employers must include all moving expense reimbursements in their employees’ taxable wages, subject to income and employment taxes. The change is significant because it means work relocation is no longer a potentially tax-deductible event for individual employees (including for owners of C corporations and S corporations). The only exceptions to this rule are for certain active members of the U.S. Armed Forces.
Despite this change for individual taxpayers, businesses can still deduct qualified moving expense reimbursements as part of their business deductions. For this reason, many employers are reevaluating how they reimburse employees for moving expenses. There are two common ways recognized by the IRS in which employers handle these types of reimbursements: accountable and nonaccountable plans.
Accountable plans often include a cash advance to cover moving expenses with the requirement that any excess amount be returned within a reasonable timeframe (120 days, according to the IRS). Any money kept for reimbursements must have a business connection and must be documented with receipts. Nonaccountable plans, on the other hand, don’t meet strict accountability guidelines. An example is a standard moving expense fringe benefit offered to all relocated employees without obligation to report back on how it’s used.
The pros and cons of each type of plan and how to administer a reimbursement program that adheres to changing IRS regulations should be discussed with a tax professional. Feel free to contact us if you have questions.
Image via 123rf.com