Moving Expense Tax Deductions

With the cost of just about everything going up these days, it would be good to get a tax break every so often. This also applies when you relocate. Moving can be both stressful and expensive. It would be nice to be able to deduct your moving expenses from your income tax. But things have changed a lot in that regard.

Here are a few important updates about moving expenses and deductions you need to know:

1. Moving Expenses Are No Longer Deductible For Most Federal Taxpayers

The Tax Cuts and Jobs Act (TCJA) of 2017, while reducing taxes for many Americans and doubling the standard deduction, also eliminated the moving expense deduction. This means you can no longer claim moving expenses as an adjustment to income the following year. The distance and time tests used to determine whether your moving costs were deductible no longer apply.

The TCJA is scheduled to expire at the end of 2025. But some tax experts predict a deal will be made in Congress to extend at least some of the tax cuts beyond 2025; most politicians do not want to explain to voters why their taxes increased. Whether the moving expense tax deduction will be reinstated, however, is unknown.

2. Moving Expenses For Active-Duty Military Members Are Still Deductible

Moving expenses may be deductible for active-duty military members who are moving because of a permanent change of station. The IRS offers a short online questionnaire to help you find out whether you can deduct your moving expenses.

For most military members, personal expenses incurred during moves between active duty posts are deductible. Costs of moving to your first post of duty and moving from your last post to home within a year of ending your active duty also may be deductible.

Expenses you might be able to deduct are moving and storing household goods and travel expenses, including gas, tolls, and parking for your personal vehicle. Lodging costs are also deductible (but not meals). Shipping your private vehicle and disconnecting utilities are also deductible.

Suppose you’re being transferred to a permanent post outside of the U.S. In that case, the storage cost for household and personal belongings is deductible for the entire time you’re at the overseas location.

The spouse and dependents accompanying an active-duty military member may also deduct their moving expenses. A spouse or dependent child of a military member who is imprisoned, deceased, or deserted could also qualify to deduct moving expenses.

Military members and family members may continue to use Form 3903, Moving Expenses to report their moving expenses and deduct them as an adjustment to income on Form 1040. IRS Publication 3, Armed Forces’ Tax Guide gives information about the tax deduction for active-duty military and how to claim it.

3. Employer Reimbursements For Moving Expenses Are Taxable

For most people, moving expenses are not currently deductible on federal income tax under the TCJA. Moreover, when your employer reimburses you for moving costs, the reimbursements are considered taxable earned income and must be reported under the law. Employers must include moving expense reimbursements in employees’ W-2 wages. 

Some employers, mindful of this, bump up their reimbursement to compensate for the tax bite. These are called “tax gross-ups.” In this case, the employer would pay an additional amount to cover the taxes on the reimbursements. The gross-ups are paid directly to the IRS on the employee’s behalf.

Also, employers may exclude from wages any reimbursements for moving expenses for moves that occurred before January 1, 2018.

4. Employer-Paid Relocation Expenses May Be Taxable

Under the TCJA, employees must pay taxes on employer-paid relocation expenses. So if your employer finances all or part of your moving expenses, you may be required to treat the amount the employer paid as taxable income. 

Depending on your salary, filing status, and moving situation, having the employer pay your moving expenses may end up costing you more in the end. For example, the moving expenses your employer paid are added to your W-2 income and may move you to a higher tax bracket. Any relocation bonus is also included in taxable income.

5. There Are Some State Tax Deductions

A few states with income taxes still allow deductions for moving expenses, such as New York and California. The TCJA, however, allows taxpayers to deduct only up to $10,000 from the total of their state and local income taxes and their property taxes. The same ceiling applies to both single taxpayers and those married filing jointly. If you’re married filing separately, the maximum is $5,000.

6. You Can Save On Moving Expenses

Despite the loss of the moving expense federal tax deduction, there are some ways you can save on your moving costs.

First, you can ask your employer to consider providing a moving expense gross-up. If your new employer offers a relocation benefit, meet with them to discuss a gross-up during the negotiation period.

Emphasize that while you are enthusiastic about the job offer and grateful for the relocation benefit, you do not want to incur additional tax expenses because of it. Many companies these days are competing fiercely for top talent, and while organizations do not have to provide tax gross-ups, many companies are willing to do what it takes to secure a great candidate. A gross-up can be an enticing part of the relocation benefits package.

So along with communicating about your other needs and concerns related to the position with your future employer, you can consider asking about a gross-up. It will help you save on your taxes and avoid having a net loss when you move for your new job.

Here are some other ways you could save on moving:

Moving some items yourself will decrease the total size and weight of items being professionally moved, which is what most moving companies base their rates on.

Getting free boxes or moving materials can help you save on moving costs.

Schedule your move during off-peak times if possible and comparison shop for the best services and rates. Here are some things to know about moving times:

  • June through August is the busiest moving season 
  • The beginning and end of each month has the most demand
  • Weekends are busier than weekdays
  • Memorial Day and Labor Day are among the busiest moving days
  • Dates before Memorial Day and after Labor Day are less busy
  • October through March are the least busy months

Summing Up

Keep in mind that all of your deductible expenses must be related to a single trip. Only one of your moving-related journeys will be deductible if you make multiple trips.

After reading this article on 6 Important Things to Know About Moving Expense Tax Deduction, you should have generated some new concepts. On this page, you’ll find more suggestions: Guide to Moving Expense Deductions [Updated 2021]


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