Are you considering a relocation which involves the US? If so, you should be aware of the changes to the rules for the moving expense deduction and the treatment of moving expenses which are reimbursed by your employer. Public Law 115-97 (“HR.1”), formally known as “an Act to provide for the reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018”, formerly known as Tax Cuts and Jobs Act, has suspended the moving expense deduction, which was previously available to individuals for taxable years 2018 through 2025.
Whether you are an American expatriate abroad or if you’re considering a move to or from the US, the recent changes should be considered carefully before deciding whether to accept an offer of employment. Conversely, if you are an employer you will need to recalculate the cost of offering relocation benefits as part of an employment offer or transfer package.
Pre-HR.1
Under the tax rules applicable to 2017 and before, qualifying a moving expense could be deducted against an employee’s income provided all three tests were met.
- The moving expense must be incurred within one year of the date on which you first report to work at the new location;
- The new workplace must be at least 50 miles farther from your old home than your old job location was from your old home. If you had no previous workplace, your new job location must be at least 50 miles from your old home; and
- After relocating, the taxpayer must be employed full-time at the new job for at least 39 weeks during the first 12 months immediately following the arrival in the new location. There are exceptions to the time test, such as members of the armed forces moving due to a military order, seasonal workers, temporary absences from work including vacation and holidays, illness, and strike.
An employer had the option to reimburse an employee for qualified moving costs, which passed the expenses to the employer for who would then be permitted to deduct the expenses for corporate tax purposes. The relocation benefit was not taxable to the employee, provided the expenses were paid or reimbursed in respect of a qualifying moving expense, and a deductible expense for the employer.
Post-HR.1
As of January 1, 2018, moving expenses are no longer deductible for individuals. Furthermore, any moving expense paid to or on behalf of the employee will be considered a taxable benefit. An example of a family of four, with adjusted gross income of $175,000, relocating from the US to an international location at the request of the employer:
|
|
Before HR.1 | After HR.1 | |
| Airfare | 6,000 | 6,000 | |
| Shipping | 6,000 | 6,000 | |
| Moving expenses | 12,000 | 12,000 | |
| Employee tax (24%) – paid by employer * | – | 3,789 | |
| Taxable wages – employee | – | 15,789 | |
| Moving expense deduction | – |
*This is at the option of the employeer and therefore the tax resulting from the taxable benefit may not be covered by te employer.
Observation
Relocation is an expensive venture. Now that the cost of moving is no longer a deductible expense under HR.1, the decision to take a position that requires relocating may involve more thought. Look at the dollars and cents or ask a professional. Planning before you accept the job could save you a lot of money.
