Are Your Job Relocation Expenses Tax Deductible?
January 27, 2017Editor’s note: The moving expense deduction was eliminated with the passing of the Tax Cuts and Jobs Act of 2018, but would still apply for tax year 2017 and prior.
Many of our client companies have a national presence and it isn’t unusual for employees to have to relocate halfway across the country for a new role. Since moving is expensive (even my local move last year when I bought a little townhouse a few miles away), accounting for those expenses becomes not just a “to do” item that is time consuming and frustrating – but possibly also rewarding! You can potentially get reimbursed for moving expenses, get paid a relocation expense and/or get to deduct some of your moving expenses on your tax return. There are a lot of “moving parts” in this situation.
With all of these potential situations in play, what do you need to know? The first thing you should know is if your move is local, like mine was, and isn’t required for work (mine wasn’t) then there is no benefit to you financially. That’s just the cost of making a transition.
Does your move have deduction potential?
If your move is for business purposes, and this would include a new job, your current job or even your first job (note to recent or upcoming grads…..this means YOU!) – your move has to pass two “tests” in order to be tax deductible:
Test #1 = the distance test. The job must be 50 miles further away than your current home. If you live 15 miles away from work now, the new role would have to be 65 miles away (and on a reasonable route, not a zigzag route through the scenic back roads).
Test #2 = the time test. Once you’ve moved, you have to spend at least 39 weeks working in the first 12 months. If you’re self employed, that bumps up to 78 weeks in the first 24 months.
If you don’t receive money from your employer
If you don’t get reimbursed, keep your receipts and track your mileage. You can use the IRS Form 3903 to track your expenses. You don’t need the Schedule A since it’s not subject to a percentage of income test and it isn’t impacted by income phase-outs.
It’s a pretty straightforward process. Things you can deduct are: the cost of moving, 30 days of storage expenses, insurance for the move, the cost of disconnecting/connecting utilities, lodging expenses during the move, the cost of transporting pets, and the cost of shipping your car (or mileage if you drive). Things you can NOT deduct are: the cost of meals and house hunting. (Boo!)
If you do receive money from your employer
Where it gets a bit tricky is if you get post-move reimbursements or a relocation allowance paid prior to your move. If you get reimbursed and it is a non-taxable reimbursement (like an expense check), you can’t double dip and then deduct the expenses. If you get reimbursed and it IS taxable (you can see if it’s on your W-2 form, box 12, Code P), you then are allowed to deduct the expenses. If you get a relocation allowance in December 2016 and incur expenses in January or February 2017, you can deduct the moving expenses as if you moved in 2016 – so you’d fill out the 3903 for the 2016 tax year, which means you’ll probably be bumping up against the April tax filing deadline.
Having just completed a move recently, I can tell you that moving is no fun. But looking for a new place can be a blast and it’s pretty cool once you’ve settled in to the new place. Remember, if you’re moving for work, it can also be something that can help you around tax filing season.