[1] EMPLOYER REIMBURSEMENTS

 

Reimbursements for qualified are designated a fringe benefit and are explicitly excluded from gross income. Code Section132(a)(6).  Reimbursements for that are not qualified, however, are includible in the gross income of the employee. Code Section 82.

 

COMPLIANCE TIP: Non-qualified moving expense reimbursements such as for pre-move house hunting expenses, expenses for buying and selling a home, temporary living expenses, or meal expenses incurred while moving are included in the employee's income. They must be entered in Box 1 of Form W-2 along with salaries and other compensation.

 

     CAUTION: Neither the above expenses nor reimbursements for them are taken into account if the employee files Form 3903 to claim a moving expense deduction in connection with qualified moving expenses.

 

     TIP: When employers reimburse their employees for expenses

     connected with the move that do not come within the narrow definition of "moving expenses" they often "gross up" the wages to include the taxes on the additional income. Although the gross up amount is taxable income to the employee, it increases the benefit that the employer provides. This is especially true if the non-qualified moving expense reimbursement is substantial.

 

A qualified moving expense reimbursement is any amount received by an

individual from an employer as a payment for or a reimbursement of

expenses that would be deductible as moving expenses under Code Section217 if paid directly by the individual. The term does not include, however, any payment or reimbursement for an expense that was actually deducted by the individual in a prior taxable year. Code Section 132(g).  Thus, for an employee to avoid including a reimbursement for moving expenses in gross income, the expenses for which the reimbursement was made must meet all the requirements of deductibility set forth in Code Section 217.

 

The IRS has made clear as well that only reimbursements made under an

"Accountable plan" are to be excluded from income. The reimbursement

arrangement generally meets the requirements of an accountable plan if it requires an adequate accounting to the employer of the expenses and

requires any excess reimbursements to be returned. Announcement 95-30,

1995-16 I.R.B. 15. Reimbursement for expenses not allowable as a deduction under Code Section 217 are treated as being made under a non-

accountable plan and must be included in income.

 

     COMPLIANCE TIP: In Announcement 97-77, 1997-33 I.R.B.

     58, the IRS eliminated the use of Form 4782, Employee Moving Expense Information, effective for 1998. Employers should report qualified moving expense reimbursements in Box 13 of Form W-2. Prior to 1993, employer reimbursements of moving expenses were includible in  gross income. Because employer reimbursements of qualified moving expenses are excludable from gross income under Code Section 132(a)(6), Form 4782 is no longer necessary.

 

     OBSERVATION: Reimbursements that meet the definition of moving      expenses but are not made under an accountability plan, are included in Box 1 of the employee's W-2 as well.

 

     COMPLIANCE TIP: If the employee is claiming a moving expense      deduction (because she was not fully reimbursed) this amount must be carried to Form 3903 to reduce the otherwise allowable expenses.

[2] Code Section 217 defines the term "moving expenses" to include only the reasonable expenses of

(1)                           moving household goods and personal effects to the new residence (including temporary storage in transit) and

(2)                           traveling to the new place of residence, including the costs of lodging.

(3)                           No deduction is permitted for the cost of meals. Code Section 217(b)(1).

Thus, to be deductible, moving expenses must be reasonable and fall within one of the stated categories. They must be incurred for the taxpayer and any member of the taxpayer's household whose principal place of abode is both the taxpayer's former and new residence. Code Section 217(b)(2).

 

[3] CORRECTION TO PUBLICATION 54, TAX GUIDE FOR U.S. CITIZENS AND RESIDENT ALIENS ABROAD

ANNOUNCEMENT 95-30

 

      Publication 54 does not reflect a change in law regarding

reimbursements of allowable moving expenses under accountable plans. The discussion of Reimbursement of moving expenses on page 17 applies only if you were reimbursed under a nonaccountable reimbursement plan or if you were reimbursed for expenses you deducted in an earlier year. Beginning in 1994, if you were reimbursed under an accountable plan, your reimbursement for allowable moving expenses is not included in your earned income and there is no need to determine when or where it was earned.

 

      Your employer's reimbursement arrangement generally is an accountable plan if it requires you to adequately account to your employer for your moving expenses and to return any excess reimbursements. Only reimbursements for allowable moving expenses are treated as paid under an accountable plan. Get Publication 521, Moving Expenses, for more information.

 

      The discussion of Allocation of moving expenses on page 28 also only applies if you were reimbursed under a nonaccountable plan or if you were reimbursed for expenses you deducted in an earlier year. Beginning in 1994, if you were reimbursed under an accountable plan, you are only required to allocate unreimbursed expenses (line 7, Part I of Form 3903-F). If all of your expenses were reimbursed, no allocation is necessary.

 

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