Are Your Job Relocation Expenses Tax Deductible?

January 27, 2017

Editor’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.

How to Deduct Your Moving Expenses

October 12, 2016

Editor’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.

I know several people who have embarked upon long distance moves recently, which also means that they were often changing jobs. My first question when I learned of the moves was, “You know you can deduct your moving expenses, right?” First, here’s what the IRS has to say about it:

If you moved due to a change in your job or business location or because you started a new job or business, you may be able to deduct your reasonable moving expenses but not any expenses for meals [emphasis added]. You can deduct your moving expenses if you meet all three of the following requirements:

Your move closely relates to the start of work
You meet the distance test
You meet the time test

Here’s what that means:

Related to the start of work: Your move doesn’t have to be because you got a new job, but the two events do need to be closely related. Specifically, you can deduct moving expenses incurred within one year from the date you first started your new job.

Distance test: Your new job must be at least 50 miles further from your old home than your old job was from your old home. If you weren’t working before you moved, then your new job must be at least 50 miles from your old home.

For example, when I graduated college in Michigan and moved to Cincinnati to start my new job, I was able to deduct my moving expenses. But when I moved to a new house in Cincinnati about the same time I started a different job, my new commute was only 5 miles longer than my old commute, so those expenses were not deductible. If you had a 5 mile commute that turned into a 55 mile commute and you switched jobs to work closer to home, you could deduct.

Time test: You have to work full-time at least 39 weeks during the first 12 months immediately after you arrive in your new location. If you’re self-employed, that time requirement increases to require full-time work for at least 39 weeks out of 12 months and for a total of at least 78 weeks during the first 24 months. So a self-employed person who works full-time for a year and 26 weeks from the day they arrive would qualify. There are exceptions to this rule for death, disability, involuntary separation, and a few other things. Publication 521 lists them all.

If you pass all of those tests, then you can deduct your moving expenses. It’s what we CPA geeks call an “above the line” deduction, which has a more favorable effect on your taxes than “below the line” deductions like mortgage interest, taxes and charitable giving. Moving expenses actually decrease your adjusted gross income, a number upon which other tax calculations are determined, including eligibility to deduct medical expenses and even your state taxable income.

What You Can Deduct

Generally speaking, you can deduct any expenses that were incurred to move your stuff, including travel. That includes the cost of storage up to 30 consecutive days, supplies such as tape, boxes, moving blankets, etc., any costs to move pets (I once had a client pay FedEx to move his horse from Florida to California) and your mileage for making the drive there. If your move involves an overnight in a hotel, you can also deduct that along with the cost of renting a moving truck. You’ll have to complete Form 3903 and file it with that year’s return and make sure you keep receipts for everything in case the IRS wants proof.

Remember, the purpose of the move doesn’t have to be because you found a new job. You can move to a new place because you want to move and as long as you switch jobs and meet the three tests, you also get a little tax boost to offset the costs. Moving is expensive. Take advantage of all the breaks you can get!

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