Are Relocation Expenses Taxable?

Written By

Machaela Casey

Answer:  Since 2018, when new legislation was passed, relocation expenses have been taxable, and employees can no longer deduct these expenses from their federal income taxes.

More information

Relocation expenses associated with moving to another part of the country are now taxable. Prior to 2018, employees could deduct these costs on their federal income taxes using IRS form 3903. Although there were time and distance requirements to qualify for these deductions, employees could claim back the fees associated with relocation, such as moving, storage, and transportation expenses.

Due to changes in the Tax Cuts and Jobs Act, employees will no longer be able to claim deductible relocation expenses on their tax returns. This means, as of 2020, employees can no longer claim relief for anything on this list of deductible moving expenses.

  • The cost of hiring a professional movers company.
  • The cost of keeping items in storage if a move is delayed.
  • The cost of moving supplies and boxes.
  • The cost of connecting/disconnecting power, water, and other utilities.
  • The cost of fuel for transportation costs associated with the move.
  • The cost of accommodation when relocating to a new area.

There is one exception to this rule. The Tax Cuts and Jobs Act specifies that members of the United States Armed Forces can still deduct these expenses when moving to another station. These members need to be active in the armed forces in order to qualify for the tax relief.

Employers can offset the costs of moving via relocation tax gross-ups. However, there are strict rules in place for this process.

Relocation expenses example

A company wants one of its managers to move to its office in San Francisco, but there are qualified moving expenses associated with this relocation. The employee will need somewhere to live and need to transport their belongings via road or rail.

Prior to 2018, the employee could claim these taxable relocation expenses on their federal income tax returns by filling out a form. Since 2018, however, the employee is not eligible for tax relief.

In another example, a member of the armed forces needs to move to another station as part of their job. They will need to spend money on transportation and other moving expenses. The member of the armed forces will be able to deduct these expenses from their income taxes.