USA: Changes to Moving Expenses Deduction

USA: Changes to Moving Expenses Deduction

US employees who move for work-related purposes must get to grips with new tax rules for the expenses they incur.

In the United States, employees who moved to take new jobs used to be able to deduct the expenses they incurred as a result of the move from their federal income taxes. However, the passage of the Tax Cuts and Jobs Act in December 2017 changed that mechanism by introducing new Moving Expense Deduction Rules.

The new rules effectively suspended the tax break for employees from 1 January 2018. Employees moving across the country for work-related reasons will now no longer be able to claim the deduction for the expenses they incur.

Previously Deductible Moving Expenses

Prior to the introduction of the Tax Cuts and Jobs Act (TCAJ), employees could claim their moving expense income tax deduction using IRS form 3903. The classification of ‘work-related’ moving expenses involved two criteria:

  • Time Requirement: The expense claim must have been in close proximity to the start date of the new employment. In practice, the tax-paying employee must have been working for at least 39 weeks, full time, within the first year of their move.
  • Distance Requirement: The new employment role must have been a sufficient distance away from the employee’s previous place of work - a minimum of 50 miles.

The tax deduction was applicable to federal income taxes only, and the relevant expenses must have been for a necessary moving purpose. These include:

  • Costs of hiring professional moving and/or packing services
  • Hire costs for moving trucks or cars
  • Purchasing moving supplies such as containers, boxes and packaging
  • Insurance to protect against loss or damage of possessions during a move
  • Costs of connecting and disconnecting utilities - power, water, internet
  • Costs related to moving personal vehicles
  • Cost of fuel, parking or other transportation needs related to the move
  • Costs of storing possessions (for up to 30 days after the move)
  • Accommodation or temporary lodging costs related to the move

Expenses not allowed under the deduction rules included food and meals, house-hunting costs, pre-move visits, or anything which an employer had already paid for.

Changes Under the Tax Cuts and Jobs Act

The TCAJ Act abolished the moving expenses deduction from 1 January 2018. In adjusting to the new tax rule, the IRS also confirmed that the reimbursement of qualifying moving expenses, by employers, would be taxable in employee wages - after the TCAJ Act removed its exclusion from “taxable income”. Taxpaying employees who moved in 2017, but who were not reimbursed for expenses until 2018, would not be taxed on the 2018 reimbursement.

The abolishment of moving expense deductions will last until 31 December 2025.

Military Exception

The TCAJ Act has left in place an exception for members of the United States Armed Forces. Taxpayers who are active-duty members of the armed forces may still apply the deduction mechanism for moving expenses incurred when they permanently change station.

Employer Considerations

With the removal of the tax deduction, employers - especially those with a global footprint - must think more carefully about the relocation packages they offer their employees. Moving expenses may become a more significant factor in negotiations with new employees - and should also be a consideration for payroll departments during enrollment.

For more information about tax deductions in the United States, explore activpayroll’s USA Global Insight Guide.