Growing Without Rain

News and Views about Taxes

Deducting moving expenses, part 3: handling employer reimbursement

with 7 comments

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.

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Written by nctaxpro

February 17, 2010 at 10:46 am

7 Responses

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  1. […] leave a comment » Part 1 – can expenses be deducted Part 2 – what expenses can be deducted Part 3 – handling employer reimbursement […]

  2. I am a federal employee, I am somewhat confused about proper deductions related to my relocation from CA to Washington DC. I need clarification on the following that was stated above: “Any other reimbursements – including reimbursements for non-deductible 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 deductible expenses but only those reimbursements (if any) that show in box 12 of the W-2 with code “P”.

    I received a separate W-2 associated with my move and Line 1 indicates wages, etc for $52,000. What can I deduct from that on my taxes, if any? It is unfair that I am now at higher tax bracket since it is reported as gross income.

    Jim

    April 11, 2010 at 7:40 pm

    • Jim:

      The separate W-2 means that the employer did include the reimbursements in your income. You file Form 3903 to deduct your moving expenses. On Line 1, you report the cost of moving your personal belongings; on line 2 you report the cost of lodging; and on line 4 you report zero. The sum of lines 1 and 2 is your deductable moving expense, which is then listed on line 26 of your Form 1040.

      It’s unfortunate that you wound up in a higher tax bracket as the result of your move, but that’s the way the law is written.

      nctaxpro

      April 11, 2010 at 7:56 pm

  3. My former employer paid non-deductible expenses directly to the service providers as a part of relocation package in 2010. The former employer also claims that it paid the taxes directly in 2010.

    I need to return these relocation expenses and the employer wants both the non-deductible expenses and the taxes. Because I need to return the non-deductible expenses, who can claim back the taxes in 2011, me or the former employer? Please note that the former employer paid the taxes directly. If I can reclaim these taxes, what documents would I need to reclaim these taxes?

    Minny Walker

    January 16, 2011 at 12:55 pm

  4. […] expenses. I wrote about this last year, so you can read Part 1, Part 2, Part 3, and Part 4 for […]

  5. I moved from the Boston area to Washington, DC for a new job. Due to a problem with the movers I hired to transport my furniture from MA to DC, I had to buy all new furniture (my old furniture is still sitting in Massachusetts). Can I deduct the cost of new furniture since I was not able to transport my old furniture?

    Sarah M

    January 13, 2012 at 4:15 pm

    • Hi Sarah:

      Sorry it took me so long to respond to this, I have been away from this blog for quite a while for a number of reasons.

      You cannot deduct the cost of new furniture as a moving expense. You can deduct the costs of storing and insuring household goods and personal effects for any period of 30 consecutive days after you moved them out of your old home and before they were delivered to your new home.

      nctaxpro

      February 28, 2012 at 10:42 am


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