Employer reimbursement of an employee’s moving expenses are no longer excludable from income under the Tax Cuts and Jobs Act. But the law was not totally clear on whether the exclusion would apply for reimbursements paid in 2018 for moves conducted in 2017. In Notice 2018-75 the IRS clarified that reimbursements made by an employer in 2018 for amounts paid in 2017 would continue to be excludable under the pre-TCJA rules.
IRC §132(a)(6) provides:
(a) Exclusion from gross income
Gross income shall not include any fringe benefit which qualifies as a -- …
(6) qualified moving expense reimbursement, …
However, the Tax Cuts and Jobs Act added IRC §132(g)(2) which states:
(g) Qualified moving expense reimbursement
For purposes of this section -- …
(2) Suspension for taxable years 2018 through 2025
Except in the case of a member of the Armed Forces of the United States on active duty who moves pursuant to a military order and incident to a permanent change of station, subsection (a)(6) shall not apply to any taxable year beginning after December 31, 2017, and before January 1, 2026.
The law is silent on whether that exclusion was meant to apply to all payments received after December 31, 2017, or only for reimbursements related to expenses incurred after December 31, 2017. As payroll departments take time to process such payments, the issue arises for a number of employees and employers where a 2017 move had expenses finally reimbursed in 2018.
The Notice decides that the law should apply only to 2018 moves--so that either payments made related to moves that took place in 2017 or reimbursements paid for such moves are excludable from the employee’s income even if the actual payment takes place in 2018:
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).
All well and good, but what if an employer had already treated such payments as taxable to the employee? Since such payments were likely made early in 2018, employers were forced to make a decision at that point if they would be taxable and it’s likely a number decided it was safest to treat them as taxable.
In that case, the IRS provides the following in the Notice:
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, Rev. Rul. 2009-39, 2009-52 I.R.B. 951 (2009), Publication 15 (Circular E), Employer's Tax Guide, and the Instructions for Form 941-X, Adjusted Employer's QUARTERLY Federal Tax Return or Claim for Refund).