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TA X Y E A R S
2 0 1 5 AND 2 0 1 6
The publication of this booklet is based on the IRS tax rules that were in
effect on December 17, 2015 for the 2015 and 2016 tax years. This booklet is
not intended to be a substitute for professional tax advice and should not
be considered a substitute for consulting with a qualified tax professional.
If you have further questions about your income tax situation and
relocation expenses, please contact a qualified income tax professional.
© 2015 Equus Software, LLC
All rights reserved. This booklet was printed in the USA. No part of this booklet
may be printed or reproduced without express written consent from the
publisher.
EQUUS SOFTWARE is the leader in state-of-the-art technology solutions for
corporate workforce mobility. Our expat software product line includes US relocation
tax gross-up software, web-based international assignment management/
expatriate tracking software, and expat cost projection software. Our products are
used by over 500 corporations, including many of the Fortune 100. Our experienced
staff provides our customers with the best software, services and support available.
Table of Contents
Introduction to Relocation—The Basics...............................................................................1
Employer-Assisted Relocation.................................................................................................2
Taxation of Relocation Expenses................................................................................................3
Who Can Deduct Moving Expenses?.........................................................................................4
Deductible Moving Expenses.......................................................................................................5
Other Deductible Expenses...........................................................................................................7
Accountable Plans vs. Nonaccountable Plans........................................................................9
How and When to Report Deductible Moving Expenses............................................10
Tax Assistance/Grossup................................................................................................................10
Year-End Tax Reporting Matters...............................................................................................14
Capital Gain or Loss from a Home Sale.................................................................................14
Overpayment of Social Security Taxes..................................................................................15
Multiple State Income Tax Returns......................................................................................16
Relocation FAQs..............................................................................................................................20
2015 Federal Income Tax Table..................................................................................................22
2016 Federal Income Tax Table..................................................................................................23
Exemptions, Phaseouts and Helpful Tax Information...................................................24
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TOC
Introduction to Relocation—The Basics
Wikipedia defines relocation as “mov(ing)...from one place to another; to
change one’s domicile or place of business.” It is common for employers to
relocate or transfer employees from one work location to another, as they
assume different responsibilities within their company. To make relocating
an attractive opportunity, employers often provide relocation assistance for
their employees. When an employer decides to relocate an employee, both
employer and employee need to consider several things.
The employer should have a company relocation policy in place to assist
in determining how to compensate employees for their relocation. There
are different approaches a company may take for assessing appropriate
compensation for relocation. For the most part, company policy determines
what expenses will be reimbursed and if tax assistance will be provided to
employees.
Employees need to consider all of the factors they would normally review
when relocating and accepting new or different employment, along with
compensation and the impact of taxation of relocation expenses. The IRS
requires that the majority of relocation expenses paid by an employer to,
or on behalf of, an employee be treated as taxable income…which can
significantly increase an employee’s taxable wages without increasing his/
her take-home pay.
The purpose of this booklet is to outline which relocation expenses are
taxable, which items are deductible, and which moving expenses should
not be included as taxable income. We will cover other relocation issues
which may affect your income tax return to assist you in understanding
the impact of a move on your tax situation.
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Domestic Relocation
A domestic relocation occurs when an employee is transferred from one
work location to another within the United States for the purpose of staying
there long term. It is designed to be a one-way, one-time move for an
employee and is the main focus of this booklet.
Short-Term Domestic Assignments
Not discussed in this booklet are short-term assignments. These are work
assignments within the US lasting less than one year and are not intended
to permanently transfer an employee to a different work location. Usually, if
an employee is on short-term assignment the employee maintains a home
in the employee’s original work location and travels to the employee’s new
work location for periods of time.
Certain expenses, such as meals, transportation, and temporary housing
or lodging are not included as taxable wages to an employee if incurred
during a short-term assignment. If your employer does not pay for or
reimburse you for expenses incurred while on short-term domestic
assignment, these expenses may be deducted as unreimbursed business
expenses on your tax return.
Foreign Relocation
International relocation is highly complex. This publication does not
discuss relocations that involve transfer out of the US to another country,
transfer from another country to work in the US, or employment of noncitizens of the US.
Employer-Assisted Relocation
In general, employers have a relocation policy that determines how
they compensate their employees and how they manage expenses.
Companies determine how much to pay for relocating an employee and
if they want to track and reimburse each expense incurred or provide
employees with a Lump Sum Payment to cover relocation costs.
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T H E I M PA C T O F A U S D O M E S T I C M O V E O N Y O U R TA X E S
By providing assistance in the form of a Lump Sum Payment, it is easier for
the employer to manage a relocating employee. These plans usually cover
the entire cost of relocation and are included as taxable wages on an
employee’s Form W-2. If you are the recipient of a Lump Sum Payment for
relocation, it is your responsibility to keep track of your relocation-related
expenses so the qualifying deductions can be made when preparing your
income tax return.
Often, relocation companies are engaged by employers to assist in
tracking the relocation and related expenses of employees. This helps
employees by ensuring that all expenses are captured, reimbursed, and
reported correctly; it helps employers by eliminating the need to allocate
additional internal resources (human resources, payroll, accounting, and
so on) to assist with relocation.
Taxation of Relocation Expenses
The IRS dictates the reportability and taxability of compensation to
an employee related to an employer-assisted move, as well as the
deductability of expenses related to the move: your move must meet
three tests for certain expenses to qualify as deductions. If a move meets all
three tests, only specific expenses outlined in this section can be deducted
as moving expenses on your income tax return.
Note: While certain expenses may be deductible, they are not ‘itemized
deductions.’ They are deducted from a different part of your income tax
return. These deductions are subtracted from your taxable income and
will lower your Adjusted Gross Income (AGI). Qualified moving expense
deductions can benefit all taxpayers, even those who do not itemize their
tax deductions.
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Who Can Deduct Moving Expenses? The IRS Tests
You can deduct your moving expenses if you meet all three of the following
requirements.
1. Your move is closely related to the start of work
2. You meet the distance test
3. You meet the time test
1) Move Related to Start of Work
Your move must be closely related, both in time and in place, to the start
of work at your new job location.
You can generally consider moving expenses incurred within one year
from the date you first reported to work at the new location as closely
related in time to the start of work. It is not necessary that you arrange to
work before moving to a new location, so long as you actually go to work
in that location. If you do not move within one year of the date you begin
work, you ordinarily cannot deduct the expenses unless you can show that
circumstances existed that prevented the move within that time.
You can generally consider your move closely related in place to the start
of work if the distance from your new home to the new job location is not
more than the distance from your former home to the new job location.
2) Distance Test
Your move will meet the distance test if your new main job location is
at least 50 miles farther from your former home than your old main job
location was from your former home. If you live and work in Sacramento,
California, and your company transfers you to Danbury, Connecticut, you
have obviously met the distance test. If you live and work in Dallas, Texas,
and accept work in Fort Worth, Texas, your new work location must be at
least 50 miles farther from your home than your work location in Dallas to
qualify.
3) Time Test
To deduct your moving expenses, you also must meet the time test for
employees or self-employed persons. After relocating to a new area and
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T H E I M PA C T O F A U S D O M E S T I C M O V E O N Y O U R TA X E S
beginning work, you must work 39 weeks out of the next year if you are
an employee. If you are self employed, you must work 78 weeks out
of the first two years at the new location. All work must be full-time
employment as defined by the industry in which you are working, in that
area, at that time.
If you meet all three of the tests your move is a qualified move and you
are able to deduct certain moving expenses on your federal tax return.
Deductible Moving Expenses
The IRS limits and defines which relocation expenses are deductible on
your federal income tax return. If you meet the three tests for a qualified
move, you may deduct:
•
•
the cost of moving your personal effects and household goods from
your original home to your new home (including some short-term
storage costs, if necessary)
the traveling costs of moving you and your family from your original
location to your new location
Moving Your Household Goods
The IRS allows a deduction for the cost to move your household goods
from your original residence to your new residence. This includes:
•
•
•
•
costs to pack up, crate and ship or move items from your main
residence, as well as some short-term storage costs
costs associated with storing your household goods for up to 30
consecutive days after they have been moved from your original home
and before they are delivered to your new home
costs associated with connecting or disconnecting utilities required as
the result of your move
costs of shipping your cars and pets to your new home
If you have personal property or household goods stored in a location
other than your primary residence, you may deduct the cost of moving
those goods to your new home. But the deduction amount is limited to
the amount it would cost to move them from your original home location.
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EXAMPLE: John and Lisa live together in a home they purchased when they were married three
years ago. Prior to their marriage, Lisa purchased a condominium in Olympia, WA, which she
converted to a furnished rental property when she moved to Seattle with John. In preparing for
their job transfer and move to Chicago, Lisa is going to sell her condo and arrange to have her
Olympia furnishings shipped. She can either have them sent to Seattle ($250) and then have them
moved with the rest of her furnishings to Chicago ($800) or arrange to have them sent directly to
Chicago from Olympia ($1000). The maximum amount she can deduct for moving these goods from
Olympia to Chicago is the cost of moving them from Seattle to Chicago ($800) since her home in
Seattle is her primary residence.
If you decide to transport your household goods yourself, the IRS will
allow a deduction for lodging for yourself and your family while en route
to your new home location. They will also allow for one additional night
of lodging if you are unable to stay in your home because everything
is packed. Members of your family do not all have to travel together
at the same time, but the IRS limits the deduction of expenses allowed
for moving trips to one trip per family member. You may deduct actual
expenses paid for transportation or the standard mileage rate of 23.0
cents per mile for 2015.
EXAMPLE: Greg and Linda have a son who is living at home while attending a local college. Greg is
being transferred from his job in Atlanta, GA, to a new position with his company at their office in
Memphis, TN. Greg and Linda are able to deduct the costs of two moving trips to Memphis if they
decide to drive and move themselves (one trip for Greg and one for Linda). They can deduct the cost
of a third trip, if their son is still claimed as a dependent on their income tax returns and is moving
with them to Tennessee.
Traveling Costs
You may deduct the traveling costs for moving you and your family from
your original location to your new location. If traveling by air, you can
deduct the airfare cost. If traveling by car, the actual cost of gas and oil or
the standard mileage rate ($0.230/mile for 2015) can be deducted.
Whether you use actual expenses or the standard mileage rate to figure
your expenses, you can deduct the parking fees and tolls you pay to
move. You can deduct lodging expenses between the two locations.
However, meals and other incidental expenses are not deductible. You
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T H E I M PA C T O F A U S D O M E S T I C M O V E O N Y O U R TA X E S
may only deduct costs associated with traveling the shortest distance
possible between your original residence and your new residence.
EXAMPLE: Jason and Amanda have been living in Los Angeles. Amanda was offered a new job
through her company in Tucson, AZ. Jason and Amanda are planning on having their household
goods shipped to their new home and plan to stop at the Grand Canyon on their way to Tucson.
Since the Grand Canyon isn’t directly in between Los Angeles and Tucson (it is 230 miles north of
the shortest travel route between the two cities), the cost to travel to this location is not deductible.
They can only deduct the cost to travel between LA and Tucson, through the shortest route possible.
They will need to separate out their Grand Canyon travel expenses from the rest of their travel
expenses for tax purposes.
Other Deductible Expenses
There are some expenses which you may incur at the time of a move
that do not qualify as moving expenses, but may be deducted as an
unreimbursed business expense or an itemized deduction on your income
tax return.
Usually these other expenses are tied to the sale or purchase of a home.
When purchasing a home in your new work location, points, mortgage
interest, or real estate taxes may be paid by your employer on your behalf.
Additionally, some employers may assist their employees by paying
duplicate housing costs. Any points, mortgage interest, and property
taxes paid as a result of a home purchase, home sale, or duplicate housing
reimbursement are deductible as itemized deductions on your IRS Form
1040 Schedule A. Please see the section on Year End Tax and Reporting
Matters for more information.
Helpful Tip
Reviewing your settlement statements from your home
sale and/or purchase may capture some property taxes
or mortgage interest paid and not reported on your
Form 1098. It is a good idea to reconcile the Form 1098
you receive at the end of the year with your settlement
statement.
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It is important that you are not ‘double deducting’ expense items on
your tax return. For example, you may not deduct an item as a moving
expense and also deduct the same expense as an unreimbursed business
expense or include it as another type of deduction. You should determine
which expenses are qualified deductible moving expenses and include
them as moving deductions only.
Expenses considered deductible moving expenses:
• Costs for movers (to pack and move household goods)
• Tips paid to movers
• Costs to move family
• Costs to move pets
• Costs to move cars
• Travel from original home location to new home
• Short-term storage costs (up to 30 consecutive days)
Expenses not considered deductible moving expenses:
• Any costs associated with purchasing or selling a home (some
expenses may be added to the cost basis of your home for
determining a gain or loss on your home sale)
• Capital losses on the sale of your home
• Car registration and licensing in new location
• Costs to get a new drivers license
• Charges for breaking a lease or security deposits
• Charges for breaking memberships in clubs
• Home improvement costs to put your home on the market
• Homeowners Association (HOA) fees
• Househunting trips/expenses
• Temporary living expenses
• Return trips to former residence
You will need to complete IRS Form 3903 to deduct your qualified moving
expenses and include it with your federal income tax return.
For more information on how to complete this form, please find our
instructions and sample on pages 12-13 of this booklet.
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T H E I M PA C T O F A U S D O M E S T I C M O V E O N Y O U R TA X E S
Accountable Plans vs. Nonaccountable Plans
There are two types of reimbursement plans used by employers. The two
types of plans are accountable plans and nonaccountable plans. The type
of reimbursement plan determines how your employer will report your
moving expense reimbursements to the IRS. If you are unsure which type
of plan was used for your relocation, contact your employer.
In accountable plans, employer reimbursements must meet three
rules:
•
•
•
Your expenses must be deductible moving expenses and must be
incurred while working for your employer.
You must adequately account to your employer for these expenses
(provide receipts, statements, invoices, cancelled checks, etc.).
You must return any excess reimbursements, advances or allowances
within a reasonable period of time.
If your plan meets all three of these rules, your deductible moving
expense reimbursements will be included in box 12 of your Form W-2
with code ‘P’ next to the amount reimbursed.
Items included in box 12 are for reporting purposes
only. These expense reimbursements are not included
as income in box 1. Since they are not included in your
income, no deduction can be taken for these expenses.
Such expense reimbursements are often referred to
as Excludable Expense Reimbursements as they are
excluded from your income.
Nonaccountable plans are all relocation expense reimbursement plans
that do not meet the three rules listed above to qualify as accountable
plans. Reimbursements of non-deductible moving expenses are
always treated as being paid under a nonaccountable plan. For
nonaccountable plans your employer is required to add all relocation
expense reimbursements to your taxable wages (included in box 1 on the
employee’s Form W-2) and to withhold applicable taxes.
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Amounts Paid to a Third Party
Instead of reimbursing you for relocation expenses, your employer
may elect to pay a third party directly for expenses on your behalf. If
your employer pays a third party for deductible moving expenses (as
previously defined) on your behalf, such payments are not reported
anywhere on your Form W-2. If your employer pays a third party for nondeductible moving expenses on your behalf, such payments are added to
your income, and included in box 1 of your Form W-2.
How and When to Report Deductible Moving Expenses
Deductible moving expenses should be reported on IRS Form 3903. The
total allowable amount (line 5 of Form 3903) of your moving deduction is
carried over to your Form 1040 (to line 26).
If you are reimbursed for moving expenses, you can deduct your moving
expenses either in the year you paid for the moving expenses or in the
year you were reimbursed for them. Typically, this will be the same year.
If you were not reimbursed for your moving expenses, you should report
your moving expense deduction on your tax return in the year you pay
the expenses.
Tax Assistance/Grossup
Tax assistance or grossup (GUP) is an added benefit some employers
provide to their transferred employees. Since a great deal of relocation
expenses are required by the IRS to be added as taxable income to a
transferred employee’s Form W-2, employer-assisted relocation has
the potential to significantly increase your taxable wages and your tax
burden.
Caution: Relocation expenses have the potential to not only increase the
amount of income on which taxes are paid, but the additional income may
push you into higher tax brackets, and may cause a ‘phaseout’ of deductions
and credits you might otherwise qualify for.
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T H E I M PA C T O F A U S D O M E S T I C M O V E O N Y O U R TA X E S
Sometimes an employer will elect to provide additional tax assistance to
offset the additional tax burden caused by the additional income. This
is called a grossup. Employers are under no obligation whatsoever to
provide a relocated employee with a grossup. You should refer to your
employer’s relocation policy to see if your employer provides any sort of
tax assistance.
If your employer does provide tax assistance in the form of a grossup,
there is no right or wrong way to calculate the grossup amount. You
should refer to your employer’s relocation policy for details on how the
grossup amount is calculated. The following list of questions provides a
sample of some of the issues to consider when analyzing your grossup
calculation:
•
•
•
•
•
•
•
•
Are all moving expenses grossed up?
What income is considered?
Which taxing authorities are considered?
Is my filing status taken into consideration?
Is my family size taken into consideration?
What tax rates are used in the calculation, and how are they
determined?
Are itemized deductions considered in the calculation, and how is the
amount to use calculated?
Does the calculation consider any phaseouts of deductions,
exemptions, or credits to which I would have been entitled?
The grossup calculation can become quite complex depending on the
methodology used. Because of the variables involved in calculating a
grossup, the grossup amount is rarely intended to compensate you for
100% of any increased tax burden. (You should not expect to be “made
whole.”).
Generally, the grossup amount is intended to provide assistance, and to
help offset any additional tax liability. Tax assistance or grossup payments
do not qualify as deductible moving expenses. Accordingly, any amount
that your employer provides for tax assistance will be added to your
income, and reported in box 1 of Form W-2.
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EXAMPLE: In this example, Scott Sample has been reimbursed for $1892
of deductible moving expenses (Form W-2, box 12). Scott also paid $720 in
deductible moving expenses which were not reimbursed by his employer
($500 in tips to his moving company and $220 to get his water and sewage
lines connected at his new residence). Since the majority of his deductible
moving expenses were reimbursed by his employer and excluded from
his wages (as shown in box 12 of his Form W-2) the only amount he
can deduct as a moving expense is the $720 he was not reimbursed for.
a Employee’s social security number
XXX-XX-XXXX
OMB No. 1545-0008
b Employer identification number (EIN)
Safe, accurate,
FAST! Use
Visit the IRS website at
www.irs.gov/efile
1 Wages, tips, other compensation
2 Federal income tax withheld
3 Social security wages
4 Social security tax withheld
5 Medicare wages and tips
6 Medicare tax withheld
7 Social security tips
8 Allocated tips
141380.37
XX-XXXXXXXX
c Employer’s name, address, and ZIP code
118500.00
The Best Company
1111 Acme Road
Anytown, CA 91000
7347.00
2050.02
141380.37
d Control number
9
e Employee’s first name and initial
23048.75
Last name
10 Dependent care benefits
Suff. 11 Nonqualified plans
12a See instructions for box 12
C
o
d
e
Scott X. Sample
1234 Oak Street
Anytown, TX 71234
13
Statutory
employee
14 Other
Retirement
plan
Third-party
sick pay
P
1892.00
12b
C
o
d
e
12c
$1,892.00
C
o
d
e
12d
C
o
d
e
f Employee’s address and ZIP code
15 State
CO
Form
Employer’s state ID number
W-2
16 State wages, tips, etc.
91325.37
XXXXXXXX
Wage and Tax
Statement
17 State income tax
18 Local wages, tips, etc.
19 Local income tax
20 Locality name
5740.53
2015
Department of the Treasury—Internal Revenue Service
Copy B—To Be Filed With Employee’s FEDERAL Tax Return.
This information is being furnished to the Internal Revenue Service.
If all of your deductible moving expenses are reimbursed
by your employer and included in box 12 of your Form W-2,
line 5 of Form 3903 will be zero. If you have deductible
moving expenses not reimbursed by your employer, the
sum of these expenses will appear on line 5 of Form 3903.
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T H E I M PA C T O F A U S D O M E S T I C M O V E O N Y O U R TA X E S
Form
3903
Moving Expenses
a
Department of the Treasury
Internal Revenue Service (99)
Name(s) shown on return
OMB No. 1545-0074
Attachment
Sequence No. 170
Your social security number
Scott X. Sample
Before you begin:
2015
Information about Form 3903 and its instructions is available at www.irs.gov/form3903.
a Attach to Form 1040 or Form 1040NR.
XXX XX XXXX
See the Distance Test and Time Test in the instructions to find out if you can deduct your moving
expenses.
See Members of the Armed Forces in the instructions, if applicable.
Transportation and storage of household goods and personal effects (see instructions) . . .
Travel (including lodging) from your old home to your new home (see instructions). Do not
include the cost of meals . . . . . . . . . . . . . . . . . . . . . . . .
1
720 00
2
1892 00
3
Add lines 1 and 2
3
2612 00
4
Enter the total amount your employer paid you for the expenses listed on lines 1 and 2 that is
not included in box 1 of your Form W-2 (wages). This amount should be shown in box 12 of your
Form W-2 with code P . . . . . . . . . . . . . . . . . . . . . . . .
1
2
5
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
$1,892.00
1892 00
4
Is line 3 more than line 4?
No.
You cannot deduct your moving expenses. If line 3 is less than line 4, subtract line 3
from line 4 and include the result on Form 1040, line 7, or Form 1040NR, line 8.
X
Yes. Subtract line 4 from line 3. Enter the result here and on Form 1040, line 26, or Form
1040NR, line 26. This is your moving expense deduction . . . . . . . . .
For Paperwork Reduction Act Notice, see your tax return instructions.
Cat. No. 12490K
720 00
5
Form 3903 (2015)
General Instructions
Who Can Deduct Moving Expenses
Future Developments
If you move to a new home because of a new principal workplace,
you may be able to deduct your moving expenses whether you are
self-employed or an employee. But you must meet both the
distance and time tests that follow. Also, your move must be closely
related both in time and place to the start of work at your new job
location. For more details, see Pub. 521.
For the latest information about developments related to Form 3903
and its instructions, such as legislation enacted after they were
published, go to www.irs.gov/form3903.
What’s New
Members of the Armed Forces may not have to meet the
distance and time tests. See Members of the Armed
Forces later in the instructions.
TIP
For 2015, the standard mileage rate for using your vehicle to move
to a new home is 23 cents a mile.
Distance Test
Purpose of Form
Your new principal workplace must be at least 50 miles farther from
your old home than your old workplace was. For example, if your
old workplace was 3 miles from your old home, your new workplace
must be at least 53 miles from that home. If you did not have an old
workplace, your new workplace must be at least 50 miles from your
old home. The distance between the two points is the shortest of
the more commonly traveled routes between them.
Use Form 3903 to figure your moving expense deduction for a move
related to the start of work at a new principal place of work
(workplace). If the new workplace is outside the United States or its
possessions, you must be a U.S. citizen or resident alien to deduct
your expenses.
If you qualify to deduct expenses for more than one move, use a
separate Form 3903 for each move.
For more details, see Pub. 521, Moving Expenses.
To see if you meet the distance test, you can use the
worksheet below.
TIP
Moving Expenses You Can Deduct
You can deduct the reasonable expenses of moving your household
goods and personal effects and of traveling from your old home to
your new home. Reasonable expenses can include the cost of
lodging (but not meals) while traveling to your new home. You
cannot deduct the cost of sightseeing trips.
Distance Test Worksheet
Keep a Copy for Your Records
1. Number of miles from your old home to your new workplace
.
.
.
.
.
.
.
.
.
.
.
1.
1565
miles
2. Number of miles from your old home to your old workplace .
.
.
.
.
.
.
.
.
.
.
.
2.
8
miles
3. Subtract line 2 from line 1. If zero or less, enter -0-
.
.
.
.
.
.
.
.
.
.
.
3.
1557
miles
.
.
.
.
Is line 3 at least 50 miles?
X Yes.
No.
You meet this test.
You do not meet this test. You cannot deduct your moving expenses. Do not complete Form 3903.
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Year-End Tax Reporting Matters
As a result of your relocation, your Form W-2 may look considerably
different than it has looked in past years:
•
•
•
•
Non-deductible moving expenses paid to you and on your behalf will
be added to your income, which will increase the amount of wages on
your Form W-2.
If you were the recipient of a Lump Sum Payment, this amount will be
added to your income.
Deductible moving expenses paid to you will appear in box 12 of your
Form W-2.
You may have income reported to multiple states and show income
tax withholding in those states.
You may want to review the amounts reported to each state, to determine
that the amounts were properly allocated to the states in which you
earned your wages. In most cases if your employer provided tax
assistance or a grossup, these additional tax amounts will already be
added to your withholding amounts (as well as your income) on your
Form W-2. If you transferred from one division of a company to another,
you may be provided with separate Forms W-2 showing income and
withholding for each division.
If you are relocating and your employer is reimbursing you for expenses,
you should receive an expense summary report at the end of the year
with your Form W-2. Your expense summary report should include all
of the expenses your employer paid directly to you, or paid on your
behalf for your relocation. It should outline the amounts excluded from
wages (deductible relocation expenses) and the amount of tax assistance
provided. You should be able to reconcile the amounts on your expense
summary report to the amounts on your Form W-2.
Capital Gain or Loss from a Home Sale
If you sell your primary residence, you may be allowed to exclude up
to $500,000 (for married filing joint taxpayers) of capital gain from your
income ($250,000 for taxpayers with a filing status of single).
14 |
T H E I M PA C T O F A U S D O M E S T I C M O V E O N Y O U R TA X E S
The IRS has two tests you must meet to qualify for exclusion of the capital
gain on your home sale:
•
•
You must have lived in the home for two of the last five years prior to
the date of its sale.
You must have owned the home for at least two of the last five years
prior to the date of its sale.
If your filing status is married filing joint, both you and your spouse are
required to meet the two IRS tests to exclude the full amount of allowable
capital gain. If for some reason you do not meet the two tests, you may
still be allowed to exclude part of the gain. Please see IRS Publication 523
for more information.
If you have any taxable gain on the sale of your main home that cannot
be excluded, you will need to report it on IRS Schedule D, Capital Gains
and Losses. If you have a loss on the sale of your main home for which
you received a Form 1099-S, you must report the loss on Schedule D even
though the loss is not deductible.
To figure out the amount of capital gain or loss on the sale of your primary
residence take:
The Selling Price
Minus Selling Expenses (commissions, advertising, etc)
to get the Amount Realized
Take the Amount Realized
Minus the Adjusted Basis (cost basis or other basis)
to get the amount of GAIN or LOSS
Overpayment of Social Security Taxes
If you have more than one employer during the year, or if you are
transferred from one division to another division within a company
that has separate payroll systems, you may end up overpaying
Social Security taxes. Social Security taxes (OASDI) are assessed at
a rate of 6.2% for the first $118,500 of wages for the 2015 tax year.
TA X Y E A R S 2 0 1 5
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That means the maximum amount of OASDI taxes that you should pay
is $7,347.00 in 2015. If you work for more than one employer or are paid
through more than one payroll system, you may have paid more than the
maximum amount of OASDI taxes for the year. This is due to the fact that
one payroll system does not know that you have already paid taxes under
another payroll system. Any overpayment of OASDI taxes can be claimed
on your Federal Income Tax return (line 71 of Form 1040) as excess Social
Security tax withheld.
If you are preparing your income taxes yourself
with one of the popular pre-packaged software
programs, the program will pick up this overpayment
of tax automatically when you key in your Form W-2
information.
Multiple State Income Tax Returns
When working and living in multiple states, you will need to complete
multiple state income tax returns at the end of the year. You will most
likely file part-year resident returns for the states in which you lived and
worked. You may also be required to file local income tax returns.
It is important that all income, deductions, and credits be allocated
properly to each state when completing your income tax returns. Wages
earned by state are already allocated on your Forms W-2. Different
methods exist for allocating other income; the most common is allocating
based on the actual dates when the income was earned (dividend
income, gains/losses, and so on can usually be tied to the date that they
were paid). The other common method is to determine a percentage of
time spent living in each location and allocate your income based on that
percentage.
16 |
T H E I M PA C T O F A U S D O M E S T I C M O V E O N Y O U R TA X E S
Generally speaking, states follow the IRS regulations with respect to
moving expenses. However, differences do exist. The most notable
exceptions are the states of New Jersey and Pennsylvania. Both of these
states consider the cost for meals incurred during the move from your old
home to your new home to be deductible moving expenses. In addition,
the distance requirement for the state of Pennsylvania is 35 miles as
opposed to the 50 miles required by the IRS.
The following states do not allow for itemized deductions on their
state income tax returns: Connecticut, Illinois, Indiana, Massachusetts,
Michigan, New Jersey, Ohio, Pennsylvania, Rhode Island, and West
Virginia. Utah and Wisconsin do not allow for itemized deductions in the
same manner as the IRS; however, they do allow a credit based on the
amount of itemized deductions allowed by the IRS.
There are also nine states that do not tax wages (including nondeductible moving expenses, which are considered wages by the IRS).
These states are Alaska, Florida, Nevada, New Hampshire, South Dakota,
Tennessee, Texas, Washington, and Wyoming.
EXAMPLE: Employee Moving Expense Report, Form W-2, and IRS Form 3903
On the following page, we have included an example for transferee
“Joe Example.” This example shows Joe’s Employee Moving Expense
Information report for the Tax Year 2015, Form W-2 and Form 3903. In
this instance, Joe has $3,500 of Qualified Moving Expenses paid to him,
excluded from his wages and included in box 12 of his Form W-2.
Joe has $10,000 of Qualified Moving Expenses which were paid to a third
party, not included on his Form W-2 and excluded from his wages. Joe
does not have any unreimbursed moving expenses (all of his qualifed
moving expenses were reimbursed by his employer or paid to a third
party by his employer) so his moving expense deduction (as calculated on
IRS Form 3903) is zero.
TA X Y E A R S 2 0 1 5
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This amount is the total of all mortgage interest,
points and property taxes paid by the employer to
this employee and on their behalf. This total may
be added to their itemized deductions on Form
1040 Schedule A of their Federal Income Tax return.
The employee should only enter this amount on
Form 1040 Schedule A if it has not been included
on any Form 1098 mortgage interest statements.
This is the total amount of deductible moving
expenses paid to this employee. This amount will appear
in box 12 of their Form W-2 (code ‘P’). The amounts in
the same column, separated by transportation of goods
and travel are the amounts which will be included
on IRS Form 3903 to calculate the Moving Expense
Deduction for line 26 on their Federal Income Tax
Return. This total was excluded from taxable income.
18 |
This is the total amount of tax assistance
(Grossup) paid by the employer on behalf of the
employee. These payments are to help offset
additional income tax liabilities an employee
may incur as the result of relocation. These
amounts are paid directly to the appropriate
taxing authorities and included in the
appropriate withholding boxes on Form W-2.
T H E I M PA C T O F A U S D O M E S T I C M O V E O N Y O U R TA X E S
Form
3903
Moving Expenses
a
Department of the Treasury
Internal Revenue Service (99)
Name(s) shown on return
OMB No. 1545-0074
Attachment
Sequence No. 170
Your social security number
Joseph A. Example
Before you begin:
2015
Information about Form 3903 and its instructions is available at www.irs.gov/form3903.
a Attach to Form 1040 or Form 1040NR.
XXX XX XXXX
See the Distance Test and Time Test in the instructions to find out if you can deduct your moving
expenses.
See Members of the Armed Forces in the instructions, if applicable.
Transportation and storage of household goods and personal effects (see instructions) . . .
Travel (including lodging) from your old home to your new home (see instructions). Do not
include the cost of meals . . . . . . . . . . . . . . . . . . . . . . . .
1
0 00
2
3500 00
3
Add lines 1 and 2
3
3500 00
4
Enter the total amount your employer paid you for the expenses listed on lines 1 and 2 that is
not included in box 1 of your Form W-2 (wages). This amount should be shown in box 12 of your
Form W-2 with code P . . . . . . . . . . . . . . . . . . . . . . . .
4
3500 00
1
2
5
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Is line 3 more than line 4?
X No.
You cannot deduct your moving expenses. If line 3 is less than line 4, subtract line 3
from line 4 and include the result on Form 1040, line 7, or Form 1040NR, line 8.
Yes. Subtract line 4 from line 3. Enter the result here and on Form 1040, line 26, or Form
1040NR, line 26. This is your moving expense deduction . . . . . . . . .
For Paperwork Reduction Act Notice, see your tax return instructions.
Cat. No. 12490K
a Employee’s social security number
XXX-XX-XXXX
OMB No. 1545-0008
b Employer identification number (EIN)
Safe, accurate,
FAST! Use
Visit the IRS website at
www.irs.gov/efile
2 Federal income tax withheld
144280.37
c Employer’s name, address, and ZIP code
23048.75
3 Social security wages
4 Social security tax withheld
118500.00
The Best Company
1111 Acme Road
Anytown, CA 91000
7347.00
5 Medicare wages and tips
6 Medicare tax withheld
144280.37
2092.07
7 Social security tips
8 Allocated tips
9
d Control number
e Employee’s first name and initial
Form 3903 (2015)
1 Wages, tips, other compensation
XX-XXXXXXXX
0 00
5
10 Dependent care benefits
Suff. 11 Nonqualified plans
Last name
12a See instructions for box 12
C
o
d
e
Joseph A. Example
123 Main Street
Anytown, CA 91001
13
Statutory
employee
Retirement
plan
Third-party
sick pay
P
3500.00
12b
C
o
d
e
12c
14 Other
C
o
d
e
12d
C
o
d
e
f Employee’s address and ZIP code
15 State
Employer’s state ID number
16 State wages, tips, etc.
17 State income tax
CA XXXXXXXX
91325.37
5740.53
MN XXXXXXXX
52955.00
2999.35
Form
W-2
Wage and Tax
Statement
2015
18 Local wages, tips, etc.
19 Local income tax
20 Locality name
Department of the Treasury—Internal Revenue Service
Copy B—To Be Filed With Employee’s FEDERAL Tax Return.
This information is being furnished to the Internal Revenue Service.
TA X Y E A R S 2 0 1 5
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Relocation FAQs
Q. My husband was relocated this year. He started working at his new job
location in April, but the kids and I did not move until July. Which date
should I use for my relocation date?
A. The relocation date for you and the kids would be the July date. Any
income earned by you should be allocated using this date. The relocation
date for your husband would be the date in April. Any income earned by
your husband should be allocated using this date.
Q. We received a lump sum reimbursement for our relocation. Can
we deduct our deductible moving expenses even though we were
‘reimbursed’ through the Lump Sum Payment we received?
A. Yes. Your employer should have added the entire amount of the lump
sum to your income. Accordingly, you are able to take a moving expense
deduction for the entire amount of deductible moving expenses you
incurred. You will need to complete Form 3903 to calculate the amount
of your moving expense deduction. You will also want to keep receipts/
documentation to support any amount claimed as deductible moving
expenses in the event of an IRS audit.
Q. We moved and had to stay in temporary housing for three months
while we found a home. I know I can only deduct 30 days of storage costs,
but what about the cost to transport my household goods from storage to
my new home? Is that cost deductible?
A. Yes. The IRS considers the cost to move your household goods from
storage to your new home to be a deductible moving expense. The IRS
also considers the cost to move your household goods from your old
home into storage to be a deductible moving expense.
20 |
T H E I M PA C T O F A U S D O M E S T I C M O V E O N Y O U R TA X E S
Q. We usually get a tax refund every year. This year we owe taxes. How
do I tell if my grossup (tax assistance) amount was correct?
A. To determine whether or not your grossup amount is correct, you
must first understand how your employer determines your grossup
amount. This should be explained in your employer’s relocation policy.
Even if your grossup amount is correct, it is still possible that you will
incur an additional tax burden. This is due to the fact that employer
provided tax assistance is rarely intended to make you whole.
While there are numerous components of a grossup calculation that
can prevent you from being made whole, there are two issues that most
frequently cause your tax assistance to be less than your additional tax
liability:
1. The first issue is that your employer may have reimbursed you
for certain expenses without providing tax assistance on those
expenses. This is often the case with miscellaneous expense
allowances, relocation bonuses, home sale bonuses, and loss-onsale payments.
2. The other issue is that most employers use only “company-source”
income in their grossup calculation. If you have a working spouse
or other sources of income in addition to your wages, it is possible
that the tax assistance provided by your employer will be less than
the increase to your tax liability.
Q. In looking at my W-2, the wage amount looks high. How can I tell if
the amount is correct?
A. To determine whether or not your Form W-2 is correct, you should
first determine your annual salary and any bonuses paid as wages. The
difference between that amount and your gross wages should equal the
sum total of your taxable relocation expenses.
TA X Y E A R S 2 0 1 5
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2015 Federal Income Tax Table
Filing Status
Married
Filing
Joint
Single
Head of
Household
Married
Filing
Separate
22 |
Tax Rate
Income Range
10%
$0 - $18,450
15%
$18,451 - $74,900
25%
$74,901 - $151,200
28%
$151,201 - $230,450
33%
$230,451 - $411,500
35%
$411,501 - $464,850
39.6%
$464,851 and above
10%
$0 - $9,225
15%
$9,226 - $37,450
25%
$37,451 - $90,750
28%
$90,751 - $189,300
33%
$189,301 - $411,500
35%
$411,501 - $413,200
39.6%
$413,201 and above
10%
$0 - $13,150
15%
$13,151 - $50,200
25%
$50,201 - $129,600
28%
$129,601 - $209,850
33%
$209,851 - $411,500
35%
$411,501 - $439,000
39.6%
$439,001 and above
10%
$0 - $9,225
15%
$9,226 - $37,450
25%
$37,451 - $75,600
28%
$75,601 - $115,225
33%
$115,226 - $205,750
35%
$205,751 - $232,425
39.6%
$232,426 and above
T H E I M PA C T O F A U S D O M E S T I C M O V E O N Y O U R TA X E S
2016 Federal Income Tax Table
Filing Status
Married
Filing
Joint
Single
Head of
Household
Married
Filing
Separate
Tax Rate
Income Range
10%
$0 - $18,550
15%
$18,551 - $75,300
25%
$75,301 - $151,900
28%
$151,901 - $231,450
33%
$231,451 - $413,350
35%
$413,351 - $466,950
39.6%
$466,951 and above
10%
$0 - $9,275
15%
$9,276 - $37,650
25%
$37,651 - $91,150
28%
$91,151 - $190,150
33%
$190,151 - $413,350
35%
$413,351 - $415,050
39.6%
$415,051 and above
10%
$0 - $13,250
15%
$13,251 - $50,400
25%
$50,401 - $130,150
28%
$130,151 - $210,800
33%
$210,801 - $413,350
35%
$413,351 - $441,000
39.6%
$441,001 and above
10%
$0 - $9,275
15%
$9,276 - $37,650
25%
$37,651 - $75,950
28%
$75,951 - $115,725
33%
$115,726 - $206,675
35%
$206,676 - $233,475
39.6%
$233,476 and above
TA X Y E A R S 2 0 1 5
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Exemptions, Phase Outs and
Helpful Tax Information
Personal Exemption
2015 Tax Year
2016 Tax Year
$4,000
$4,050
Married Filing Joint
$309,900
$311,300
Single
$258,250
$259,400
Head of Household
$284,050
$285,350
Married Filing Separate
$154,950
$155,650
$12,600
$12,600
Single
$6,300
$6,300
Head of Household
$9,250
$9,300
Married Filing Separate
$6,300
$6,300
Married Filing Joint
$309,900
$311,300
Single
$258,250
$259,400
Head of Household
$284,050
$285,350
Married Filing Separate
$154,950
$155,650
$1,000
$1,000
Moving Mileage Rate
$.230/mile
$.190/mile
Business Mileage Rate
$.575/mile
$.540/mile
Supplemental Withholding Rate
25%/39.6%
25%/39.6%
$118,500
$118,500
6.20%
6.20%
$7,347
$7,347
Medicare Tax Rate
1.45%
1.45%
Additional Medicare Tax Rate
0.90%
0.90%
Married Filing Joint
$250,000
$250,000
Single
$200,000
$200,000
Head of Household
$200,000
$200,000
Married Filing Separate
$125,000
$125,000
Exemption
Phase Out
Married Filing Joint
Standard
Deduction
Deduction
Phase Out
Child Tax Credit
Wage Base Limit
Social
Security (OASDI)
Tax Rate
Maximum Withholding
Additional
Medicare
Threshold
24 |
T H E I M PA C T O F A U S D O M E S T I C M O V E O N Y O U R TA X E S