Why Are Moving Expenses No Longer Deductible?
Learn why most moving expenses are no longer tax deductible. Understand the legislative changes and their impact on your relocation finances.
Moving expenses, often a substantial financial undertaking, were once commonly deductible on federal income tax returns. However, significant changes have reshaped their tax treatment. This article explores why these expenses are generally no longer deductible for most taxpayers and outlines the limited circumstances where the deduction still applies.
Understanding Previous Deductibility
Before recent tax law changes, taxpayers could deduct certain moving expenses if their relocation was for a new job. To qualify, individuals needed to satisfy both a “distance test” and a “time test.” The distance test required the new job location to be at least 50 miles farther from the former home than the previous job location. If there was no former job, the new workplace had to be at least 50 miles from the former home.
The time test required working full-time for at least 39 weeks during the first 12 months after arriving at the new job location. For self-employed individuals, a more stringent test applied, requiring 39 weeks in the first 12 months and 78 weeks in the first 24 months. Deductible expenses included packing, crating, and transporting household goods, as well as travel expenses (including lodging but not meals) for the taxpayer and household members.
The Tax Cuts and Jobs Act Impact
The landscape for moving expense deductions changed significantly with the passage of the Tax Cuts and Jobs Act (TCJA) of 2017. This legislation suspended the deduction for qualified moving expenses for most individual taxpayers. The suspension is effective for tax years beginning after December 31, 2017, and is scheduled to remain in effect through December 31, 2025.
This suspension applies broadly to most employees and self-employed individuals. Expenses such as hiring movers, transportation costs, and temporary storage are no longer deductible for them. Taxpayers who relocate for work during this period generally cannot claim these costs on their federal tax returns.
Continuing Deductibility for Specific Groups
Despite the widespread suspension, a specific exception exists for members of the U.S. Armed Forces. Active-duty military members who move due to a permanent change of station (PCS) can still deduct their unreimbursed moving expenses.
A permanent change of station includes moves between duty stations, from a last duty station to a retirement location, or overseas and within the U.S. For these military moves, the distance and time tests do not apply. Eligible expenses for military personnel include the costs of moving household goods and personal effects, as well as travel expenses (including lodging, but not meals). These deductions are reported on IRS Form 3903, “Moving Expenses.”
Implications for Taxpayers
The suspension of the moving expense deduction has direct financial consequences for many taxpayers. If an employer reimburses an employee for moving expenses, those reimbursements are now generally considered taxable income to the employee. This means the reimbursed amounts are included in the employee’s gross income and are subject to federal income tax, Social Security, and Medicare taxes.
Even if an employer pays a moving company directly, or provides a lump sum for relocation, these amounts are typically treated as taxable wages to the employee. This shift places a greater tax burden on employees who move for employment.