Applicable Federal and State laws require certain reimbursements to relocated employees to be included in the employee's gross income, and certain relocation expenses to be excluded.
Expenses which constitute qualified moving expense reimbursements under Federal guidelines should not be considered as taxable income. Expenses which are not qualified are taxable and should be included in the employee’s W-2 tax withholding statement. Each employee is ultimately responsible for the proper reporting and tax treatment of any reimbursements to the IRS for each tax year. It is recommended that the employee consult a tax advisor or devote personal time to a detailed review of tax regulations to determine the effect upon personal income tax liability. Additionally, IRS publication 521, Moving Expenses, is available upon request from the IRS.
Step by Step
Know Qualified Moving Expenses:
Qualified moving expenses are defined as the reasonable costs of (1) moving household goods and personal effects from the former residence to the new residence (this includes common carrier and in-transit storage expenses), and (2) travel—including lodging during the period of travel—from the former residence to the new place of residence. Qualified moving expenses do not include any expenses for meals.
Know Non-Qualified Moving Expenses:
The following costs do not constitute qualified moving expenses under Federal guidelines:
- Pre-move house hunting trips
- Temporary living expenses in the general location of the new job and,
- Selling or settling an un-expired lease on the former residence or the cost of buying a new residence.
Qualified moving expenses are excludable from gross income and wages for income and employment tax purposes to the extent paid for by the agency or University. The reimbursement of expenses which do not constitute qualified moving expenses reimbursements under the IRS guidelines must be added to the employee’s income as taxable income with the appropriate Federal and State income taxes withheld.
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