8747 / Can an employer deduct moving expenses for which it reimburses its employees? Are reimbursed moving expenses included in the taxpayer-employee’s gross income?

Editor’s Note: The 2017 tax reform legislation suspended the ability of taxpayers to deduct moving expenses under IRC Section 217 for 2018-2025. Although the Section 132 employer deduction for moving expenses is also suspended from 2018 through 2025, an exception exists for members of the armed forces (and their spouses and dependents) who are on active duty.¹ The rules discussed below generally apply for tax years beginning prior to 2018 unless otherwise noted.

Prior to 2018, generally, if an employer reimbursed an employee for business-related moving expenses (see Q 8746), that employer was entitled to deduct the reimbursed amount as an ordinary and necessary business expense under IRC Section 162.

If a taxpayer is reimbursed by the employer for non-qualified moving expenses (see Q 8746), the taxpayer must include those reimbursed amounts in gross income as compensation for services rendered.² A taxpayer is not required, however, to include amounts reimbursed for “qualified moving expenses” in gross income (see Q 8746). These qualified moving expenses are instead treated as a fringe benefit that is specifically excluded from an employee’s income.³

In order for a moving expense reimbursement to be excludable from the employee’s gross income, the reimbursement must be related to an expense that would be deductible by the employee (if the employee had paid it directly, see Q 8746) under IRC Section 217. If the employee actually did deduct the expense in a prior year, reimbursement for the expense is not excludable under Section 132.⁴ For tax years beginning after 2017 and prior to 2026, reimbursement for moving expenses (where the move is motivated by employment or self-employment) is included in the gross income of the recipient as compensation for services.⁵