Moving Expenses: IRS Requirements for Reimbursement

Qualified Moving Expenses

For tax purposes, the Internal Revenue Service (IRS) classifies moving expenses into two types: qualified reimbursements and nonqualified reimbursements. Qualified reimbursements paid to the employee through the payroll system are not taxable to the employee, but the amount must be reported on IRS Form W-2 in Box 12 using a code of "P" for excludable moving expense.

The following types of expenses are considered qualified moving expenses if they meet the IRS distance and time tests and conform to the rules for accountable business expense reimbursement plans (described in the next two sections):

Use of Personal Car for the Move

If the person uses his or her car for the move, the IRS considers the following as qualified expenses:

Qualified Moving Expenses Paid to a Third Party

Qualified moving expenses paid directly to a third party (i.e., moving company) are not taxable or reportable and must be paid through an Accounts Payable invoice.

IRS Distance and Time Test

Distance Test

The new job must be at least 50 miles farther from the employee's former home than the old job. Example: If the old job was 3 miles from the former home, the new job must be at least 53 miles (50+3) from the former home.

If there was no previous job, the new job must be at least 50 miles from the employee's old home. The distance measured by this test is the shortest of the most commonly used routes between two points.

Time Test

IRS rules state that the employee must work full-time in the general vicinity of the new job location for at least 39 weeks of the first 12 months after moving. If the employee leaves before working 39 weeks and does not repay the moving expense reimbursement, then the entire payment will be considered a nonqualified reimbursement. This requirement does not apply if the employee cannot meet it because of death, disability, involuntary termination (except for willful misconduct), or transfer for the employer's benefit.

Important Note: Research Foundation policy regarding length of employment differs from the IRS time test requirement. Refer to What to Do if an Employee Resigns in the document Moving Expenses: Requesting and Processing Reimbursements procedure.

Accountable Business Expense Reimbursement Plans

The following IRS rules for accountable business expense reimbursement plans also apply to moving expenses:

Nonqualified Moving Expenses

Nonqualified reimbursements are taxable income to the employee and must be paid through payroll and included in the employee's income and taxed the same as the employee's regular salary or wages.

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