1. What is it?
Companies reimburse employees’ moving expenses for job-related relocation.
Reimbursements are taxable income to employee
Employee can deduct moving expenses from gross income
Copyright 2011, The National Underwriter Company

2. When is it indicated?
Consider when consistent with recruitment and staffing needs since moving expense reimbursement provides substantial benefits to employees
Copyright 2011, The National Underwriter Company

3. Advantages Can induce prospective employee to change jobs
Larger companies can encourage employee mobility
Is a tax-free form of employee compensation
Employers have complete flexibility in plan design
Copyright 2011, The National Underwriter Company

4. Disadvantages
Distance test requires new job to be at least 50 miles from employee’s former home to obtain deduction
Expenses for house hunting or selling, buying, or leasing a residence are not deductible
Copyright 2011, The National Underwriter Company

5. Tax Implications Employer tax treatment
Moving expense reimbursement to employees or third parties on behalf of employees is tax deductible IF meet reasonable compensation test
Must report reimbursement as compensation on employee’s W-2; tax does not have to be withheld
Plan can be discriminatory
Copyright 2011, The National Underwriter Company

6. Tax Implications Employee tax treatment
Moving expense is an above-the-line deduction (i.e. subtracted from gross income IF certain requirements are met:
Distance test
Time test
Limits on types of expenses that are deductible
Copyright 2011, The National Underwriter Company

7. Tax Implications Distance test Time test
New main job is > 50 miles farther from home than old main job location was
Time test
Employee must work full time at least 39 weeks during first 12 months after arriving at new job location
Copyright 2011, The National Underwriter Company

8. Tax Implications Type of expenses deductible
Only reasonable costs for:
Packing, crating, moving household goods and personal effects (incl. care and household pets)
Storage and insurance for any 30-day consecutive period while between new and old home
Travel to new home
Copyright 2011, The National Underwriter Company

9. Tax Implications Nondeductible expenses:
Home improvements to help sell old home
Loss on sale of old home
Mortgage penalties
Forfeiture of club dues or entry fees
Any part of purchase price of new home
Real estate taxes
Copyright 2011, The National Underwriter Company

10. Tax Implications Nondeductible expenses (cont’d)
Car registration or driver’s license fees
Reinstalling carpets or draperies
Storage charges other than those expressly permitted
Expenses for house hunting, selling, buying, or leasing a residence
Copyright 2011, The National Underwriter Company

11. ERISA and Other Implications
Tax Implications
Reporting by employee
To claim an expense deduction, regardless of reimbursement, employee must file Form 3903
NOT a pension or welfare benefit; ERISA provisions do NOT apply
ERISA and Other Implications
Copyright 2011, The National Underwriter Company

12. Discussion Question
Explain how the moving reimbursement could be applied under these circumstances:
You change jobs and initially drive 160 miles round trip from your home for several years, then you move closer to your job.
You want to make sure that you don’t get an inadequate price on the forced sale of your home when moving.
Discussion question – see pages
Copyright 2011, The National Underwriter Company