Whether you've been reassigned across the country to a new division of your current employer or are choosing to relocate to begin a completely different job, you may be evaluating the various expenses you'll be incurring during this process. If you're not receiving a relocation package from your employer, how can you minimize the costs associated with your move? Will you need to pay income taxes on moving expenses directly paid by your employer? Read on to learn more about the tax treatment of moving expenses and reimbursements.
When can you deduct moving-related expenses?
If your move fulfills each of the three requirements below, you may be able to deduct most of the associated costs.
- Location of workplace
In order for your moving expenses to be deductible, the workplace to which you're transferring must be at least 50 miles farther from your home than your old workplace. For example, if you currently commute 50 miles round-trip each day, your new workplace must be at least a 100 mile round-trip (in any direction) in order to meet the distance test. If this is your first job or you spent a long period of time unemployed, your employer must be at least 50 miles from your current home for you to deduct the costs of a move.
- Proximity of move to start date
You'll also only be able to deduct moving expenses if your move occurred fairly close in time to your first day of work. Otherwise, it can be difficult to demonstrate that you didn't simply move to a new location and then find a job (and expenses associated with this type of move are not deductible). Generally, as long as you began work within one year of your moving date, you'll be permitted to deduct these expenses.
- Time spent at new employer
The IRS wants to avoid allowing deductions for an employment-related move if you simply quit the job (or are fired) after a few weeks or months. You'll only be able to deduct these expenses if you worked at least 10 of the 12 months (or 39 weeks) following your move.
What expenses are deductible?
If your move fulfills the above requirements, you'll be able to deduct all expenses associated with the packing, storage, transporting, and even unpacking of your personal effects. You'll also be able to deduct any costs incurred (including mileage) in transporting you and your family to your new home -- except meal costs. These deductions are available regardless of whether you itemize your income taxes.
How are corporate relocation expenses treated?
If you paid for your move out of pocket but were later reimbursed by your employer -- or if your employer paid these expenses directly -- you won't be able to deduct them on your income taxes. In fact, in some situations, you may be taxed on these expenses as imputed income.
- When are your reimbursed expenses not taxed?
If your reimbursement arrangement qualifies as an "accountable plan," you won't be taxed on any of the reimbursement funds received. This type of plan requires you to strictly document all expenses and receive reimbursement of only the amounts that are strictly business-related and for which you have a receipt or invoice.
If your reimbursement arrangement does not require you to account for expenses or return excess funds -- for example, you're simply given a check for $5,000 to cover any moving expenses -- this will be considered a "nonaccountable plan" and you'll be required to pay income taxes at your marginal rate on any funds that were not used to cover business-related moving expenses.
In either situation, any attempts to deduct moving expenses for which you received reimbursement could subject you to an audit -- including fines and penalties. Your best bet is to consult an experienced accountant to help you determine precisely which expenses should be included on your income taxes. You may also be able to learn more by contacting a moving company that specializes in corporate relocations.