Deductions on Moving Expenses and Reimbursements
As a US citizen or resident alien moving to a new primary work place outside the US and its possessions, you may file for deductions related to your moving expenses. These expenses may be ones you paid for yourself or the amount reimbursed by your employer. Deductions must be claimed for moving expenses which are reasonable and necessary to the shift in workplace. Aside from these criteria, you must also pass the Time and Distance tests. Let us look at these tests in more detail.
In order to establish the relevancy of your move to your work, the Time Test requires:
- An employee to work in the new full-time job for at least 39 weeks within 12 months of moving.
- A self-employed person at least 39 weeks within the first 12 months and 78 weeks within 24 months of the move.
You can be exempted from this test for reasons such as end of work due to a disability, layoffs or if you were transferred for the employer’s requirement.
Your new primary workplace must be 50 miles away from your former home than your old primary workplace.
For example, if your old office was 10 miles away from your old home, your new office would now have to be at least 60 miles away from your old home in order for you to qualify for moving expense related deductions.
If this workplace is your first, it must be 50 miles away from your old residence. The distance between both points is calculated by considering only the shortest or commonly used routes.
Note: Members of the Armed Forces are NOT required to meet both tests if their work relocation is their final i.e., they relocate within 1 year of their retirement to their new primary work place.
As an employee if your moving expenses are reimbursed by your employer, how you report this expense depends on the type of reimbursement namely, accountable and non-accountable.
If your deductible expenses are:
- connected to your business i.e., these expenses were incurred while carrying out a business-related service for your employer.
- accounted for and presented to your employer in fair time
- only incurred expense and does NOT include unexpected excess reimbursement. This excess amount must be returned within fair time.
– If these criteria are met, employer should include reimbursement in Box-12 and not in Box-1 of Form W2 (Wage and Tax Statement) under code P.
If the reimbursement:
- does not meet the accountable plan criteria
- Is non-deductible
- is an excess reimbursement that is not returned to the employer in fair time is considered an unaccountable reimbursement.
-An example of this would be moving expenses paid for by reduction of your pay by the employer. A reimbursement in this case would be the reduced amount which is part of your income. Given this, your employer must include the amount in Box-1 of Form W2, withholding income, Medicare and social security taxes.
- Deductibles can be claimed on moving expenses during the year your employer reimburses as supposed to the year the moving expenses were actually paid by you.
- If move is made to a foreign tax home, reimbursement is considered as wage for future services. It is taxable for the year the move is made if you pass either the bona fide residence or physical presence test. If not, the reimbursement amount for the current year is:
Total reimbursement * (No. of qualifying days / total No. of days in the year)
Moving Expense Deductions when filing Form 2555
There are some moving expenses reported that may overlap with those reported under Form 2555 if you are filing for Foreign Earned Income Exclusion (FEIE). In such cases, the overlapping amount must be reported under FEIE with a mention that it is NOT a deductible moving expense. They are separately allocable.
Filing for the deductions
Moving expense deductions can be reported using Form 3903-F. Each move requires a separate Form 3903-F. These must be filed with Form 1040 where the moving expenses can be deducted.
For more details refer IRS Publication 521