Tax Rules for Moving Expenses:

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	Tax Rules for Moving Expenses Personal Finance Advisor by OnLine August 3, 1998

Make sure you meet the tests for deductions, and keep good records.

The summer is traditionally the season for vacationing and moving. Many corporate relocations take place during the summer months so workers’ families can be settled into their new homes before the start of the school year. It is important for relocating employees to understand the tax rules for moving expenses, and maintain good records of all expenses incurred.

Distance Test: For moving expenses to be deductible, the new place of employment must be at least 50 miles further than the distance between the previous work site and the taxpayer’s old residence. The distance test is based on the former home address: the computation does not consider the location of the new home. For example, if a taxpayer’s old job was five miles from his/her former home, the taxpayer’s new job must be at least 55 miles from the former home. The distance is measured by the shortest, most commonly used route.

Time Test: An employment time test must also be met in order to deduct moving expenses. The test does not require the taxpayer to work for the same employer for the duration of the required time period, and a temporary absence from work because of illness, strike, lockout, natural disaster, or other similar circumstances, will not affect the outcome. The computation differs depending on the type of employment:

Full-Time Employees: Relocating full-time employees must continue working full time for at least 39 weeks during the first 12 months after arriving in the new location. The 39 weeks need not be consecutive, and the work need not be for the same employer.
Seasonal Workers: Individuals who work in seasonal jobs are considered to be full-time employees if their work contract covers a 12-month period and the off-season is less than six months. For example, a schoolteacher who teaches full time for more than six months and has a 12-month contract is considered a full-time employee for the entire 12-month period. Like full-time employees, seasonal workers must meet the 39-week test.
Self-Employed Individuals: Working full time for at least 39 weeks during the first 12 months after arriving in the new location is also a requirement for deducting moving expenses of self-employed individuals. Additionally, these taxpayers must work at least 78 weeks during the first 24 months after arrival in the new location. Self-employed individuals involved in a seasonal trade or business will be considered full-time workers if the off-season is less than six months.

There are a number of exceptions that can reduce the required working time -- the worker becomes disabled or dies, is transferred (that is, relocates again) for the employer’s benefit, is laid-off for reasons other than misconduct, or moves back to the United States because of retirement. Exceptions also apply to the survivor of a worker whose primary job was out of the United States, and certain members of the armed forces who are permanently relocated to a new base or station.

Qualified Expenses: Two categories of qualified moving expenses can be deducted: (1) costs of moving household goods and personal effects (including costs of packing, storing, and insuring household goods, as well as amounts paid for connecting/disconnecting utilities), and (2) travel and lodging expenses (not including meals) incurred while moving to the new residence.

Reimbursed Expenses: Employer reimbursements for qualified moving expenses usually are excluded from the employee’s gross income. A moving expense deduction cannot be taken for reimbursed qualified moving expenses that are not included in gross income. Reimbursements for unqualified moving expenses are included in the taxpayer’s gross income. If an employer reimburses a worker for a loss on the sale of his/her home, the amount reimbursed is included in the employee’s gross income. Likewise, if an employer purchases a relocating employee’s home for more than its fair market value, the excess is included in gross income. An employer that reimburses an employee for moving expenses should provide the relocating worker with a completed Form 4782, "Employee Moving Expense Information."

Moving expense reimbursements will be treated differently depending on whether the employer has an "accountable" or "nonaccountable" plan. An accountable plan complies with three criteria:

Reimbursements are for qualified moving expenses.
The relocating taxpayer provides the employer with an accounting of expenses incurred within a reasonable amount of time.
Excess reimbursements are returned to the employer within a reasonable time period.

If these conditions are met, reimbursements generally will not be included in the employee’s gross income. Reimbursement for unqualified moving expenses made in an accountable plan, however, will be included in gross income.

A nonaccountable plan is one that does not meet one or all of the above three criteria. In most cases, amounts reimbursed under a nonaccountable plan are included in the employee’s gross income, and qualified moving expenses are deducted as an adjustment to gross income.

Travel by Car: Certain expenses are deductible when a taxpayer uses his/her personal vehicle to transport people and/or belongings to the new home. Tax rules include two methods for deducting automobile expenses: (1) actual expenses incurred (including costs of gas and oil), or (2) standard mileage rate (10 cents per mile for 1998). Additionally, parking fees and tolls may be deducted.

Change of Address: Notify the IRS of a change in address by filing Form 8822, "Change of Address."

These are some thoughts to consider about moving expenses. Your financial and tax advisors can provide more information and should be consulted before any action is taken.