Deductibility of Moving Expenses

By Richard Greenfield

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Increasingly, it is not unusual to move from one city to another several times during a lifetime, or to change jobs several times during one’s career. If an employee or self-employed individual incurs moving expenses in connection with the beginning of a new principal place of work, an income tax deduction may be allowed if certain distance and time tests are met. The deduction is above-the-line (i.e., the expense is deducted from gross income).

Distance Test

The move will meet the distance test if the new principal place of work is at least 50 miles farther from the taxpayer’s former residence than the old principal place of work was from the taxpayer’s former residence. For individuals working for the first time, the principal place of work must be at least 50 miles from their former residence to meet the distance test. If an individual returns to full-time work after a substantial period of unemployment or part-time work, the new place of work must also be at least 50 miles from the former residence.

The principal place of work generally is the location where the individual spends most of the time working. If there is no single place where the individual spends most of the time working, the principal place of work is the location where the work is centered.

If the individual has more than one job, the principal place of work is generally determined based on the facts and circumstances of each case. The following factors are considered:

  • The total time spent at each location;
  • The amount of work or business activity at each location; and
  • The amount of income earned at each location.

Time Test

Employees and self-employed individuals must meet their own time tests in order for their moving expenses to be deductible.

Employees. An employee must work full-time for at least 39 weeks during the 12-month period following her arrival in the general area of the new principal place of work. The 12-month period begins on the date that the employee arrives in the new job location, whether her family and personal effects arrive with her or at a later date.

The employee does not have to work for the same employer for all 39 weeks for purposes of the 39-week rule. The 39 weeks do not have to be consecutive. Time spent working as a self-employed person does not count toward the 39-week requirement. The employee must work full-time within the same general commuting area for all 39 weeks. An employee is considered to have worked full-time during any week that she temporarily misses work due to illness, strikes, lockouts, layoffs, natural disasters, or similar events. Vacation time provided for in an employment contract or agreement is also considered as full-time work for purposes of the 39-week requirement. Seasonal employees are considered working full-time during the off-season only if their work contract covers an off-season period and if that period is less than six months.

Self-employed individuals. A self-employed individual must work full-time for at least 39 weeks during the 12-month period following his arrival in the general area of the new principal place of work and must also work full-time for at least 78 weeks during the 24-month period after arriving at the new work location.

The person counts full-time work as a self-employed individual or employee for purposes of the 39/78-week tests. The person does not have to be self-employed in the same trade or business or work for the same employer. The individual must work full-time within the same general commuting area for all 78 weeks. A self-employed individual is considered to have worked full-time during any week that he temporarily misses work due to illness, strikes, natural disasters, or similar events. If a self-employed individual’s trade or business is seasonal, the off-season period may be counted as full-time work if the off-season is less than six months and the person works full-time before and after the off-season.

Exceptions. Employees and self-employed individuals do not have to meet the time test if work at the new location ends because of death or disability. Another exception occurs when an employee is transferred for the employer’s benefit or the employee is laid off for a reason other than willful misconduct. For this exception to apply, the employee must have obtained full-time employment with the expectation, at the time the job began, that he would meet the time test.

An employee or self-employed individual can deduct moving expenses for a tax year even if he has not yet met the time test by the due date (including extensions) for filing a tax return for that year. If the time test is not met, the taxpayer can either amend the return for the tax year that the moving expenses were deducted, or report the moving-expense deduction as other income on the return for the year that he cannot meet the test.

Other types of individuals. The time test does not have to be met by retirees who were working abroad and who move to the United States or one of its territories. To qualify, the retiree’s main job location and former home must have been outside the United States. The individual must be moving to a new home in the United States when she permanently retires. A person is considered to be permanently retired when gainful full-time employment or self-employment ends.

The time test also does not have to be met by survivors of decedents working abroad. To qualify, the move must be to a new home in the United States; the move must begin within six months after the decedent’s death; the move must be from the decedent’s former home; the decedent’s former home must have been outside of the United States; and the decedent’s former home must have been the survivor’s home. For purposes of the moving-expense deduction, a survivor is defined as a spouse or dependent of the decedent whose principal job location at the time of death was outside of the United States.

Members of the Armed Forces on active duty who move because of a permanent change of station do not have to meet either the distance or time tests.

Deductible Moving Expenses

Moving expenses can be deducted for the cost of moving household goods and personal effects from the former residence to the new residence and for the cost of traveling (including lodging, but not meals) from the former residence to the new residence. Moving expenses must be reasonable for the circumstances of the move.

Moving household goods and personal effects includes the cost of transporting furniture and personal effects of the taxpayer and other members of the household, as well as the costs of packing and in-transit or foreign-move storage. A member of the household is anyone whose former home and new home will be that of the taxpayer who is incurring the moving expenses.

The cost of traveling from the old home to the new home should be expenses incurred using the shortest, most direct route available by conventional transportation. The costs of side trips for sightseeing are not deductible moving expenses. If the taxpayer travels by car, actual expenses such as gasoline and oil can be deducted, or the special standard mileage rate for moves can be used. In addition, parking fees and tolls are deductible. General maintenance, repairs, insurance, and depreciation of the vehicle are not deductible. Expenses of only one trip to the new home are deductible, but the entire household does not have to travel together or at the same time.

For domestic moves, the cost of storing and insuring household goods can be deducted only for any period of 30 consecutive days after the day that the goods are moved from the old home and before they are moved to the new home. For foreign moves (outside of the United States and its possessions), the reasonable expenses of storing household goods for all or part of the time that the new job location remains the principal job location of the taxpayer are deductible. Reasonable costs of moving household goods to and from storage are also deductible. Many expenses that previously were deductible as moving expenses, such as pre-move house-hunting expenses and meals, are no longer deductible.

Reimbursements by employers. Employers often reimburse their employees for job-related moves. The reimbursements should not be included in wages if they are paid under an accountable plan, if they are for moving expenses that the employee could deduct if she had paid or incurred them, and if they were not deducted in an earlier year.

For a moving-expense reimbursement arrangement to be considered an accountable plan, the expenses must be deductible by the employee had she paid them herself. In addition, the employee must adequately account to the employer for those expenses within a reasonable period of time. Finally, any excess reimbursement must be returned to the employer within a reasonable period of time. If the arrangement is not considered an accountable plan, the reimbursements must be reported as wages on the employee’s Form W-2.

If moving-expense reimbursements are reported as wages, a cash-basis taxpayer can elect to deduct the moving expenses in the year that the employer makes the reimbursement if the employee paid the expenses in the year immediately after the year of reimbursement, but no later than the due date (including extensions) for filing the return for the tax year in which the reimbursement was received. Reimbursements for nondeductible moving expenses must be reported as wages regardless of whether they are accounted to the employer by the employee.


Richard Greenfield, CPA, is a director with Reminick, Aarons and Company, LLP, in New York City. He is a member of the NYSSCPA’s Taxation of Individuals Committee.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



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