Moving Expenses

Deductible Moving Expenses:

Moving expenses are deductible if all three of the following requirements are met:

1. The move is closely related to the start of work
2. The move meets the distance test
3. The time test is met
   

Related to Start of Work:

The move must be closely related, both in time and in place, to the start of work at the new job location.  Normally, moving expenses incurred within one year from the start date at the new location will satisfy the related time test.  If the move is not made within one year of the work start date, the expenses are not ordinarily deductible unless special circumstances existed that prevented the move within that time.  To meet the related in place requirement, the distance from the new home to the new job location must be less than the distance from the former home to the new job location.  If this is not the case, the expenses may still be deductible if; 1) the taxpayer is required to move to the new home as a condition of employment; or 2) less time or money will be spent commuting from the new home to the new job location.

Distance Test:

The move will meet the distance test if the new job location is at least 50 miles farther from the former residence than the prior job location was from the prior residence.  Example, if the prior job location was 3 miles from the prior residence, the new job location must be at least 53 miles from the prior residence.  If the taxpayer is going to work full-time for the first time, the new job location must be at least 50 miles from the taxpayer’s former residence to meet the distance test.

Time Test:

In order for the moving expenses to be deductible, one of the following tests must be met:  1) The time test for employees.  To meet this, the taxpayer must work full-time for 39 weeks during the first 12 months after moving to the new location; or 2) The time test for self-employed persons.  To meet this, the taxpayer must work full-time for 39 weeks during the first 12 months after moving to the new location and 78 weeks during the first 24 months after the move. 

If  the above requirements are met, the following expenses are deductible:

1. Moving household goods and personal effects. This includes the cost of packing, crating, and transporting household goods and personal effects of the family being moved from the former residence to the new residence.  Also included are the costs to transport automobiles and pets, storage expenses for up to 30 days and utility connections.
2. Traveling (including lodging but not meals) to the new home.  These would include parking fees, toll charges and either actual gas or oil, or the standard mileage rate for moving expenses of .12 per mile established by the IRS.  If mileage is reimbursed at a higher rate, the difference is not deductible.  Lodging expenses are also deductible for one day before the move and one day after the taxpayer arrives at the new location.  Traveling expenses are only deductible for one trip to the new location.  Any house hunting trips are not deductible.
   

There is no deduction for general repairs, general maintenance, insurance or depreciation for the vehicle.

The following expenses are not deductible:

1. Any part of the purchase price of the new home
2. Car tags
3. Driver’s License
4. Expenses of buying or selling a home
5. Expenses of getting or breaking a lease
6. Home improvements to help sell the former residence
7. Loss on the sale of the home
8. Losses from disposing of memberships in clubs
9. Meal expenses
10. Mortgage Penalties
11. Pre-move house hunting trips
12. Real Estate taxes
13. Refitting of carpets and draperies
14. Security Deposits
15. Storage charges for beyond 30 days
16. Temporary living expenses
17. Mileage reimbursement over the allowable rate of .12 per mile

Reimbursements to Employees:

NC State University reimburses moving expenses under an Accountable Plan.  In order to qualify as an Accountable Plan, the following three rules must be met:

1. The moving expense deduction must be of a type for which a deduction would be allowed had the employee paid them themselves.  Two examples of this type of deduction would be:  1) Reasonable expenses of moving your possessions from the employee’s former home to their new home and; 2) the employee traveling from their former home to their new home – see above description of deductible expenses.
2. The employee must adequately account to their employer for these expenses within a reasonable period of time.

Adequate accounting requires the employee giving their employer documentary evidence of their moving expenses.  Documentary evidence would include things such as receipts, canceled checks, bills and mileage logs.

If all of the employee’s reimbursements meet the guidelines for an accountable plan, the employer should not include any reimbursements in Box 1 of the employee’s W-2.  The reimbursement amount would be reported in Box 12 and excluded from taxable income.

If deductible expenses are reimbursed under an otherwise accountable plan but the employee does not return, within a reasonable period of time, any reimbursement of expenses for which they didn’t adequately account, only the amount which they did adequately account is considered as paid under an accountable plan.  The remaining expenses are treated as having been reimbursed under a nonaccountable plan and included as taxable wages in Box 1 of the employee’s W-2. 

An employer can reimburse the employee for nondeductible moving expenses. Any reimbursements for nondeductible expenses are treated as if reimbursed under a nonaccoutnable plan and would be included as taxable income in Box 1 of the employee’s W-2.

NC State Process:

MOVING EXPENSE REIMBURSEMENTS MUST BE PAID FROM A DISCRETIONARY FUND ACCOUNT 51530 IS USED TO RECORD MOVING EXPENSES, DO NOT USE TRAVEL REIMBURSEMENT ACCOUNTS

Data is queried from PS Financials to pull in all payments made to 51530 during a calendar year.   These are reviewed to identify all reimbursed moving expenses during the year. 

The initial review looks at the distance test.   If the move does not meet the distance test, the process is stopped and the entire reimbursement amount is considered taxable. For the remaining items in the query, supporting documentation on the reimbursement voucher is reviewed to determine if all reimbursed moving expenses aresupported by documentary evidence.  

When the review is complete, Accounts Payable will forward a worksheet to payroll containing moving expense information for W-2 reporting.  Any taxable reimbursements will be included as taxable income on line 1 of the employee’s W-2.  All non-taxable reimbursements will be included in Box 12 of the W-2 with a code of P.  Code P indicates Excludable moving expense reimbursement paid directly to employee.

When an employee is assessed taxable income as a result of a reimbursement for nondeductible moving expenses, Accounts Payable will send a letter to the employee who incurred the moving expenses to make them aware of the taxability of their reimbursements.

Source for further information:  IRS Publication 521 – Moving Expenses