You just found the perfect employee and have agreed to pay their moving expenses to move into town to work for you! Well, bad news, with the change in the moving expense rules with the new tax law, this just became a more expensive endeavor for you and your employee.
Before the Tax Cuts and Jobs Act or TCJA, qualified moving expense reimbursements were excludable from an employee’s income which was exempt from tax withholding and employment taxes. And these expenses were deductible to the employer. Win-win! These qualified moving expenses included 1) cost of moving household goods and personal effects and 2) travel expenses including lodging, (but not meals) for one trip by the taxpayer and each member of the household, even if they do not travel together.
To be considered a qualified move, it was required that the move met certain conditions such as distance from former home to new home and were related to a full-time job change. The reimbursement also had to be under the employer’s accountable plan.
If the conditions were not met, the reimbursement needed to be added to the employee’s compensation, subject to income tax as well as the employer’s employment taxes. This wasn’t all bad since employee could still deduct the moving expenses as an above the line deduction and therefore, not have to pay income tax on the qualified moving expense.
For tax years beginning in 2017 and before 2016, there is no longer any exclusion for moving expenses, unless you are a member of the military on active duty as required by a military order and it is a permanent change of station.
As an employer, you can still reimburse the employee and deduct this reimbursement as a deduction, but the employee will have to pay income taxes and applicable social security and Medicare taxes on it. As the employer, you will now have to match the social security and Medicare taxes as well as pay unemployment taxes on this additional compensation.
Also, in order to make this tax free to the employee and entice them to move, it is likely that the employer will need to gross up the reimbursement, making the move much more expensive for the employer, then it was previously.
A little more about us:
Located in West Des Moines, Iowa with a branch office in Winterset, Iowa, McGowen, Hurst, Clark & Smith, P.C. celebrates 65 years of extending excellent service to our clients, providing them with accounting, auditing, consulting and investment expertise.
Established in 1946, our staff has grown from 3 to 60 employees, making us large enough to provide our clients with a broad base of experience and resources, yet small enough to offer very personalized service—which we feel makes us stand apart from other CPA firms. In addition to the traditional services of Accounting, Tax Preparation, Audit and Business Consulting, MHC&S offers our clients specialized services including Estate Planning, Business Valuations, Cost Segregation Studies, Retirement Planning, QuickBooks Training, Financial Advisory Services, Fraud Detection and Deterrence, Business Succession Planning, Litigation Support and more.
MHC&S is a member of CPAmerica International, Inc., a national association of accounting firms offering membership to only 90 firms throughout the United States. This association offers a wide pool of additional technical expertise to the members firms, as well as continuing professional education necessary to maintain the degree of excellence which MHC&S feels is vital in today’s business environment.