Internal Revenue Service Reporting (Federal Taxes) for Relocation Expenses
Non-Taxable Reimbursements
Qualified moving expenses are reimbursed as nontaxable income. The amount reimbursed is reported on the employee's Form W-2 in Box 12 Code P, if paid as a direct reimbursement to the employee. Qualified moving expenses paid to a third party are not reported on the relocating employee’s Form W-2.
Qualified moving expenses for every member of the relocating employee’s household are also considered non-taxable reimbursements. The members of the relocating employee’s household do not have to travel together or at the same time for their qualified moving expenses to be eligible for reimbursement. However, the relocating employee can only deduct expenses for one trip per person. Examples of non-taxable relocation expenses include:
- Shipping of household goods, vehicle, and/or household pets
- Travel from old location to new location by vehicle or plane
- If travel by vehicle, then the route taken to the new home location has to be the shortest and most direct route available.
- If travel by vehicle, may use gasoline purchases on route or current calendar year IRS standard relocation mileage reimbursement rate for reimbursement, but not both. For reimbursement by mileage rate, employee must keep an odometer log or use point to point MapQuest documentation of miles traveled from previous location to new location.
- If travel by vehicle, include parking fees and tolls paid during travel but not any part of general repairs, general maintenance, insurance, or depreciation of the employee’s or employee’s household member’s vehicle(s).
- Lodging
- Includes lodging expenses incurred in the area of employee’s former home within one day after employee could no longer live in the former home because the furniture had been moved.
- If traveling by vehicle, lodging expenses incurred in route to new home location is non-taxable but only for one night at each layover or stop.
- The day of arrival is the day the employee and his or her household members secure lodging at the new place of residence, even if the lodging is on a temporary basis.
- Temporary housing – first day of arrival only, then days after that are taxable
- Short-term storage (including insurance)
- Cost of storing and insuring household goods and personal belongings within any period of 30 consecutive days after the day the employee’s household goods and personal belongings are moved from the former home and before they are delivered to the employee’s new home.
- Costs of moving goods and belongings to and from storage
Taxable Reimbursements
Nonqualified moving expenses that do not qualify as nontaxable reimbursements are processed as either a payroll payment with taxes withheld, or paid via an accounts payable voucher and added to the employee's payroll records as a taxable fringe with additional taxes withheld on a subsequent paycheck. Examples of eligible relocation expenses that are taxable include:
- pre-move house hunting expenses (i.e., airfare, gas, car rental, etc.)
- return trips to former residence
- expenses for entering into or breaking a lease
- security deposits
- expenses of buying or selling a home
- real estate taxes
- meals
- car tags
- temporary housing or any lodging costs after the first day of arrival to new work location
- storage costs for storing and insuring household goods and personal belongings over 30 days is taxable.