Growing Without Rain

In the prior entries, I told you

how to determine if you qualify to deduct moving expenses, and

what you can and cannot deduct.

It’s far less frequent now, but in the past employers would often offer prospective employees an incentive package that included reimbursement of some or all of their moving expenses. For example, when I moved from Pennsylvania to Maryland in 1982, the company that hired me paid the cost of moving and shipping my household goods and personal effects, and provided a 30-day housing allowance. So how do you handle employer reimbursements when figuring your expenses?

You might think that you don’t report any expenses that were reimbursed by your employer. That’s not necessarily the case; it depends on the method your employer uses to reimburse you. Let’s consider several ways that your expenses can be reimbursed:

1. The employer pays a third party (such as a moving company) directly. In this case, you have no cost or direct reimbursement, and those expenses are not reported.

2. Your employer reimburses you directly, but you are required to file an expense report within 60 days of incurring your expenses, and the employer remiburses you only for the expenses that you are allowed to deduct. The employer may pay you an advance, but if the advance is more than your actual expenses you are required to return any excess to the employer. In this case, you are very likely reporting your expenses under an accountable plan. You can confirm this by looking at your W-2; there should be an entry in Box 12 with Code “P” for the amount of your reimbursement. If the employer’s reimbursement was for 100% of your deductable moving expenses, you do not report either the expenses or the reimbursement. If the employer’s reimbursement was for less than 100% of your deductable moving expenses, you report both the total of the expenses and the reimbursement you received, and you can deduct the difference.

3. Any other reimbursements – including reimbursements for non-deductable expenses, such as my 30-day housing allowance – are reimbursements under a non-accountable plan. The employer is required to include those in your income (box 1 of your W-2) and deduct Social Security and Medicare taxes. In this case, since you have been taxed on the reimbursement, you report all of your deductable expenses but only those reimbursements (if any) that show in box 12 of the W-2 with code “P”.

If you are not sure where your reimbursements fall – especially if your W-2 does not have a Box 12/Code “P” entry – ask your employer. If your employer did not include your reimbursements in either Box 1 or Box 12, then you must include those reimbursements on Line 7 of your Form 1040 – they are considered to be part of your compensation.

If you were reimbursed in 2009 for moving expenses that you incurred and deducted in 2008, on the other hand, and those reimbursements show up on your 2009 W-2 in Box 12/Code “P”, you report that reimbursement as other income on Line 21 of your Form 1040.

In the next – and final! – installment, I’ll discuss how moving expenses are deducted on your Federal return, and how they are treated on state returns.