Moving Expense
Reimbursement
Chapter 58
Employee Benefit & Retirement Planning
What is it?
Companies reimburse employees’ moving expenses for
job-related relocation.
– Reimbursements are taxable income to employee
– Employee can deduct moving expenses from gross income
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Moving Expense
Reimbursement
Chapter 58
Employee Benefit & Retirement Planning
When is it indicated?
Consider when consistent with recruitment and staffing
needs since moving expense reimbursement provides
substantial benefits to employees
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Moving Expense
Reimbursement
Chapter 58
Employee Benefit & Retirement Planning
Advantages
1. Can induce prospective employee to change jobs
2. Larger companies can encourage employee mobility
3. Is a tax-free form of employee compensation
4. Employers have complete flexibility in plan design
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Moving Expense
Reimbursement
Chapter 58
Employee Benefit & Retirement Planning
Disadvantages
1. Distance test requires new job to be at least 50
miles from employee’s former home to obtain
deduction
2. Expenses for house hunting or selling, buying, or
leasing a residence are not deductible
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Moving Expense
Reimbursement
Chapter 58
Employee Benefit & Retirement Planning
Tax Implications
Employer tax treatment
1. Moving expense reimbursement to employees or third
parties on behalf of employees is tax deductible IF meet
reasonable compensation test
2. Must report reimbursement as compensation on employee’s
W-2; tax does not have to be withheld
3. Plan can be discriminatory
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Moving Expense
Reimbursement
Chapter 58
Employee Benefit & Retirement Planning
Tax Implications
Employee tax treatment
Moving expense is an above-the-line deduction (i.e.
subtracted from gross income IF certain requirements are met:
• Distance test
• Time test
• Limits on types of expenses that are deductible
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Moving Expense
Reimbursement
Chapter 58
Employee Benefit & Retirement Planning
Tax Implications
• Distance test
New main job is > 50 miles farther from home than old main job
location was
• Time test
Employee must work full time at least 39 weeks during first 12
months after arriving at new job location
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Moving Expense
Reimbursement
Chapter 58
Employee Benefit & Retirement Planning
Tax Implications
• Type of expenses deductible
Only reasonable costs for:
• Packing, crating, moving household goods and personal effects
(incl. care and household pets)
• Storage and insurance for any 30-day consecutive period while
between new and old home
• Travel to new home
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Moving Expense
Reimbursement
Chapter 58
Employee Benefit & Retirement Planning
Tax Implications
• Nondeductible expenses:
– Home improvements to help sell old home
– Loss on sale of old home
– Mortgage penalties
– Forfeiture of club dues or entry fees
– Any part of purchase price of new home
– Real estate taxes
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Moving Expense
Reimbursement
Chapter 58
Employee Benefit & Retirement Planning
Tax Implications
• Nondeductible expenses (cont’d)
– Car registration or driver’s license fees
– Reinstalling carpets or draperies
– Storage charges other than those expressly permitted
– Expenses for house hunting, selling, buying, or leasing a
residence
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Moving Expense
Reimbursement
Chapter 58
Employee Benefit & Retirement Planning
Tax Implications
Reporting by employee
To claim an expense deduction, regardless of reimbursement,
employee must file Form 3903
ERISA and Other Implications
NOT a pension or welfare benefit; ERISA provisions do
NOT apply
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Moving Expense
Reimbursement
Chapter 58
Employee Benefit & Retirement Planning
Discussion Question
Explain how the moving reimbursement could be
applied under these circumstances:
1. You change jobs and initially drive 160 miles round trip from
your home for several years, then you move closer to your
job.
2. You want to make sure that you don’t get an inadequate
price on the forced sale of your home when moving.
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