Did you move to take a new job this year, or are you considering moving for work in the near future?
According to the U.S. Census Bureau, just over 10% of the more than 32 million people who relocated in 2018 did so because of a new job or job transfer. If you’re one of them, you may have heard that moving expenses are tax-deductible and want to know how you can benefit.
Unfortunately, thanks to the Tax Cuts and Jobs Act (TCJA) of 2017, for most people, moving expenses are no longer deductible. However, the deduction is still available for some taxpayers, and there are other ways to offset the cost of moving. Read on to learn more.
Deducting Moving Expenses: The Old Rules
For 2017 and prior, taxpayers can deduct moving expenses if they meet the following requirements:
- Related to the Start of Work. The move must be related both in time and place to the start of work in a new location. Moving expenses incurred within one year from the date you report to work are generally considered to be related in time. Expenses are related in place if the distance from your new home to your new job is not greater than the distance from your old home to your new place of employment.
- Distance Test. Your new job location must be at least 50 miles farther from your former home than the distance from your former home to your former job. If you did not have a job, then the new place of employment must be at least 50 miles from your former home.
- Time Test. There are different time tests if you’re an employee versus if you’re self-employed:
- If you’re an employee, you must work full-time for 39 weeks in the first 12 months following your arrival in the area of your new job.
- If you’re self-employed, you must work 39 weeks in the first 12 months and 78 weeks in the first 24 months following your arrival in the area of your new work location.
Note: If you’re married and filing a joint return, either you or your spouse can meet the time test, but you cannot meet the test by adding your weeks of employment to your spouse’s weeks of employment.
Exceptions to the Time Test
There are several situations in which you do not need to meet the time test, including:
- Your main job location was outside the U.S., and you moved to the U.S. because you retired.
- You are the survivor of someone who worked abroad at the time of their death, and you moved to the U.S.
- Your job in the new location ends because of death or disability.
- You are transferred for your employer’s benefit or are laid off (not for willful misconduct), as long as you were working full-time and expected to be employed long enough to meet the time test.
- You are in the Armed Forces, and you moved because of a permanent change of station. A permanent change of station includes a move from your home to your first post of active duty, from one post of duty to another, or from your last post of duty to your home or a nearer point in the U.S.
For moves in 2017 and earlier, if you met the above tests, you can deduct the following expenses:
- Moving your household goods and personal effects, including packing, crating, and transporting, as well as in-transit storage
- Connecting or disconnecting utilities
- Shipping your car or pet
- Traveling (transportation and lodging, but not meals) to your new home, as long as you travel by the most direct route. Side trips for sightseeing or visiting relatives or friends cannot be considered part of the move. If you drive your own car, you can deduct either actual expenses (if you keep an accurate record) or a standard mileage rate. For 2017, that rate is 17 cents per mile driven. With either method, you can also deduct tolls and parking expenses. You cannot deduct general auto repairs or maintenance, insurance, or depreciation.
If your employer reimburses any of the above expenses and does not include the reimbursement as taxable income on your W-2, you cannot deduct those expenses on your return. Similarly, if your employer reimbursement is greater than the cost of your move, you must include the excess in your taxable income.
Deducting Moving Expenses: The New Rules
The TCJA suspended moving expense deductions for tax years 2018 through 2025 for all non-military taxpayers. Active-duty members of the military who move due to a permanent change of duty station can still deduct moving expenses. The definition of a permanent change of station mentioned above still applies. If you use your own car to drive yourself, members of your household, or your personal effects to your new home, you can either deduct actual expenses or a standard mileage rate of 18 cents per mile.
If you qualify, you’ll use Form 3903 to calculate your moving expense deduction. You can find more information on deducting moving expenses and an illustrated example of how the deduction is calculated in IRS Publication 521.
Also, while the federal government has suspended the deduction for moving expenses, some states still allow taxpayers to claim a deduction on their state income tax returns, so check the state tax laws where you live. The AICPA maintains a list of each state’s Department of Revenue.
Employer Reimbursements for Moving Expenses
Some employers offer relocation assistance, either to help existing employees relocate to a new city for work or to woo talent from outside their geographic area. However, this form of employee benefit is not very common.
According to the Society for Human Resources Management, only 28% of employers offered a lump-sum payment toward moving expenses to employees in 2018, and only 12% reimbursed the cost of shipping an employee’s household goods.
Prior to 2018, an employer could pay for or reimburse an employee’s qualified moving expenses, and the payment was considered a tax-free fringe benefit, meaning it was not included in the employee’s taxable income for the year. However, under the TCJA, employers must now include all moving expenses in an employee’s wages, and the payments are subject to income and employment taxes. Members of the U.S. Armed Forces can still exclude qualified moving expense reimbursements from their income if:
- They are on active duty
- They move pursuant to a military order and incident to a permanent change of station
- Their moving expenses would qualify as a deduction if they didn’t get a reimbursement
In light of the deduction changes, it’s a smart move to negotiate a relocation package from your employer whenever possible. According to HomeAdvisor, a cross-country move typically costs anywhere from $1,912 to $5,300, depending on the size of your home and how far you’re moving. It can cost even more if you hire professional movers to handle everything from packing and cleaning to unpacking boxes in your new home.
If your employer is willing to reimburse those costs, you’ll pay income and payroll taxes on the reimbursement, but you’ll still be better off than you would be if you covered the entire cost out of your own pocket.
Plus, some employers will “gross up” their moving expense reimbursements to counteract the fact that reimbursements are now taxable – meaning they’ll give an employee more money than necessary for the move to cover the added taxes.
Moving is a hassle, and with moving expenses no longer providing a tax break for most taxpayers, there’s less of an incentive to relocate for a new job – at least for now. However, both the moving expense deduction and the moving expense reimbursement exclusion are set to return as of January 1, 2026, as long as Congress doesn’t decide to make the change permanent.
In the meantime, you can still take steps to save on your move by doing most of the work yourself and shopping around to compare prices. And don’t forget to negotiate a relocation package from your employer; that’s money in your pocket, even if the government does take a cut.
For more tax advice, check out our complete tax filing guide.
Did you move to take a new job this year? Did your employer offer relocation assistance, or did you cover the costs on your own?