ISSUE

Tax reform – the 2017 “TCJA” – rendered moving expenses nondeductible and employee reimbursements of moving expenses taxable after 12/31/17.  Now, the IRS has clarified the treatment of 2017 moving expenses paid in 2018.

 

SITUATION

Troas Bible College (TBC) is a private college exempt under Internal Revenue Code section 501(c)(3) and 170(b)(1)(A)(ii).  They are required to file Form 990 annually.

The Accounting folks at TBC send us an email asking the following:  “We spoke with you at one of your tax and accounting summits this year about a professor who moved to our institution in late 2017 and did not submit his moving expenses until January 2018.  At the time, you said that we were awaiting guidance, but it seemed that the moving expenses reimbursement in this situation would not be taxable to the employee.  Have you heard anything with regard to clarifying guidance in this area?”

We answer that this is a timely question (or, re-asking of a question!).  The IRS – just this week – issued a notice stating that an employer’s payments or reimbursements in 2018 for qualifying employee moving expenses incurred prior to 2018 are excluded from the employee’s wages for income and employment tax purposes.  The IRS says the suspension of the moving expenses tax exclusion “applies only to payments or reimbursements for expenses incurred in connection with moves that occurred after December 31, 2017.”

So, if an employee moved in 2017 and the expenses for the move would have been deductible under I.R.C. Section 217 (as in effect prior to the “TCJA” rules) and the employee did not deduct the moving expenses, then the amount paid or reimbursed by the employer in 2018 is not to be included in wages.

**Note that “Tax Reform: Moving Expenses” is the subject of Tax Tips for February 7, 2018.

 

RULES

From IRS Notice 2018-75:

The exclusion from income provided in section 132(g)(1) applies if, among other things, the expenses being paid or reimbursed (1) would be deductible under section 217 if directly paid or incurred by the individual, and (2) the expenses were not deducted by the individual. Section 11048(b) of the Act, providing the effective date for the suspension of the exclusion from income for qualified moving expense reimbursements, does not specify whether the suspension applies to all payments or reimbursements received after December 31, 2017, irrespective of when the move occurred, or, alternatively, only to payments or reimbursements for expenses incurred for moves that occurred after December 31, 2017.

This notice provides that the suspension of the exclusion in section 132(a)(6) applies only to payments or reimbursements for expenses incurred in connection with moves that occurred after December 31, 2017. Thus, if an individual moved in 2017 and the expenses for the move would have been deductible by the individual under section 217 as in effect prior to the amendments made by the Act if they had been paid directly by the individual in 2017, and the individual did not deduct the moving expenses, then the amount received (directly or indirectly) in 2018 by the individual from an employer as payment for or reimbursement of the expenses will be a qualified moving expense reimbursement under section 132(g)(1). As such, the payment or reimbursement of the expenses is excludable from income as a qualified moving expense reimbursement under section 132(a)(6), and the amount is both excludable from wages under sections 3121(a)(20), 3306(b)(16), and 3401(a)(19) and excludable from compensation under section 3231(e)(5).

Employers that have included such amounts in individuals’ wages or compensation for purposes of federal employment taxes and have withheld and paid federal employment taxes on these amounts may use the adjustment process under section 6413 or the refund claim process under section 6402 to correct the overpayment of federal employment taxes on these amounts (for information on these adjustment and refund claim processes see the regulations under these sections,

 

BOTTOM LINE

• Historically, moving expenses (paid or reimbursed) were not taxable to the employee.
• If certain criteria were met, unreimbursed moving expenses could be deducted by the employee on Form 3903 – no longer.
• The “moving expense” tax treatment – as we’ve know it – is suspended for taxable years 2018 through 2025 by the “TCJA.”
• The IRS has prescribed that qualified moving expenses incurred before 1/1/18 are not taxable to the employee.

Specific questions? Email Dave Moja

The information provided herein presents general information and should not be relied on as accounting, tax, or legal advice when analyzing and resolving a specific tax issue. If you have specific questions regarding a particular fact situation, please consult with competent accounting, tax, and/or legal counsel about the facts and laws that apply.

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