IRS Frequently Asked Questions for Moving Expenses (Feb. 7, 2019)
The IRS has posted four FAQs on its website that clarify which moving expenses paid or reimbursed by an employer in 2018 can be excluded from an employee’s income. The Tax Cuts and Jobs Act (TCJA) suspended the exclusion for qualified moving expense reimbursements for taxable years beginning after 2017 and before 2026, except for certain active duty servicemembers (see our Checkpoint article). (The individual deduction for moving expenses is suspended for the same period.) But in response to questions about the suspension’s effective date, the IRS announced in Notice 2018-75 that payments or reimbursements in 2018 for expenses attributable to an employee’s move in 2017 could be excluded from income if (1) the expenses would have qualified for the moving expense deduction had they been paid for by the employee in 2017 and (2) the employee has not taken a deduction for the expenses (see our Checkpoint article). The IRS has now issued FAQs clarifying the rule, applying it to moves that began in 2017 and ended in 2018, and addressing Form W-2 reporting.
The first two FAQs restate—in simpler terms—the conclusions of Notice 2018-75: If an employee moved in 2017, and an employer paid or reimbursed those moving expenses in 2018, the employer’s payment or reimbursement can be excluded from the employee’s income as a qualified moving expense reimbursement if the employee could have deducted the expenses, had the employee paid them in 2017. Another FAQ considers employer payments or reimbursements for moves that began in 2017 but ended in 2018. Those payments and reimbursements, the FAQ concludes, can only be excluded to the extent they are for services provided or expenses incurred before 2018. For example, if an employee moved household goods in 2017, but did not travel to the new place of employment until 2018, only the portion of the employer’s reimbursement or payment related to moving the household goods would be excludable. Finally, the FAQs indicate that excludable 2018 reimbursements of 2017 expenses should not be reported in Form W-2 box 12 with Code P because that code is “only used” for excludable qualified moving expense reimbursements for members of the U.S. Armed Forces.
EBIA Comment: These FAQs are logical extensions of existing guidance, and many employers will have already addressed these issues. However, they provide welcome clarification regarding the unusual situation of a move that straddled 2017 and 2018, and the impact of 2018 reimbursements on Form W-2 reporting. For more information, see EBIA’s Fringe Benefits manual at Section XVII (“Moving Expense Benefits”).
Contributing Editors: EBIA Staff.