Are employer paid moving expenses taxable
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Are employer paid moving expenses taxable?

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Asked by Orville

September 27, 2018 under Others

In regards to paying for a new employees moving expenses, what is tax deductible as a business, and what is taxable to the employee?

Answered by Michael E Fromm

September 27, 2018

As of January 2018, the Tax Cuts and Job Act has changed a number of tax deductible expenses, as well as benefits a business could offer their employees. Among the eliminated deductions are employer-provided, job-related moving expenses. The law is in effect from the tax year 2018 through the tax year 2025. The only exception to this law are for military-related moving expenses.

Before the TCJA was enacted, the cost of moving an employee, his or her family, and their belongings, were excluded from the employee's income. As of 2018, moving costs are now considered taxable income.

Accountable plan

However, if you want the moving expenses to be non-taxable to the employee, you can pay them through an "accountable plan." This means that an employee pays for the expenses, and the employer reimburses them. There are stipulations for the expenses to count as non-taxable expenses, such as:
  • The employee must have paid or incurred the expenses while as an employee of your company
  • The move is required by the business
Furthermore, the employee must account for these expenses, such as submitting receipts, within a reasonable amount of time. If you are giving the employee an advance for moving expenses, they must also return any money not used. If the criteria are not met, it is no longer considered an accountable plan, and therefore taxable to the employee and subject to withholding.

Temporary housing

If your employer sends you off on a temporary work assignment, the expenses you incur might be tax deductible. Temporary housing includes renting a house or apartment, including utilities. Staying in a motel or hotel for your work assignment is also considered temporary housing. There are a few other stipulations for temporary housing to qualify as such.
  • Is the assignment within the employee's "tax home"? The IRS defines a tax home as the city (including suburbs) in which business is normally conducted. Depending on the metropolitan area, it could straddle multiple state lines. 

  • What is the assignment length? In order to deduct the cost of temporary housing, the employee's assignment must not last longer than 12 months.

  • Is the employee traveling with anyone? Anyone who accompanies the employee must be their employer or business associate, and must be eligible to take a business expense deduction if they pay their own expenses. If a spouse or dependent travels with the employee, they must prorate the rent, unless they have a reason related to the business.

  • Did your employee receive reimbursement? If you reimbursed your employee in full for their temporary accommodations, it is not deductible. Furthermore, they may only deduct the portion of costs that they were not reimbursed for. If your employee received a per diem or allowance, their rent is only deductible if you included the allowance in their taxable income.

  • Can you write off other moving costs on your taxes? Read this guide for more information regarding moving expense tax deductions.
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