US Tax Reform Update: 2018 Employer Reimbursements for 2017 Moves are Excludable

Published: Wednesday, September 26, 2018
Elaine Baker

In a recent blog post, we discussed the 2017 U.S. Tax Cuts and Jobs Act, enacted by the Federal Government on January 1st of 2018, and its impact on relocation. The information below summarizes an update released by the Internal Revenue Service on September 21st of 2018, regarding the taxability of moving expenses incurred in 2017 that were invoiced and/or paid in 2018.

Background and Highlights:

Prior to the September 21st clarification, there was a great deal of ambiguity regarding the treatment of payments or reimbursements processed in 2018 for moves implemented in 2017. Initially, the 2017 Tax Cuts and Jobs Act stated that the exclusion for qualified moving expenses [in sections 132(a)(6) and 132(g)(1)] did not apply for taxable years beginning after December 31, 2017 and before January 1, 2026, but it failed to specify how payments and reimbursements tied to 2017 moves should be treated if paid or reimbursed in 2018.

IRS Notice 2018-75, 2018-41 IRB 1 provided clarification to this grey area of the Act. It stated that the suspension of the exclusion only applies to payments or reimbursements for expenses related to moves that occurred on or after January 1, 2018.  Reimbursements or employer payments made in 2018 for employee moves occurring in 2017 would remain excludable from the incomes of employees.

Third-Party Payments for Moving Services and Moving Reimbursements

With this in mind, if an employer pays a third party in 2018 for moving services that were provided to an individual in 2017 (or reimburses an individual in 2018 for moving expenses that were incurred before January 1, 2018) these payments and reimbursements are not to be included in an employee’s income. In cases where employers have included such amounts in employee wages in relation to employment taxes, the notice also states that these employers can either use the adjustment process under section 6413 or the refund claim process under section 6402 to correct any overpayment of federal employment taxes.

For further information and updates related to the 2017 Tax Cuts and Jobs Act visit the IRS Website, where you can also find information specific to Notice 2017-75. You may also contact Taryn Kramer, Vice President, Global Consulting or Kathy Burrows, Director, Global Consulting to learn more about how this current tax reforms impact relocation and your mobility program.