American ExpressAmerican ExpressAmerican ExpressAmerican ExpressAmerican Express
United StatesChange Country

What You Need to Know About the Moving Expense Tax Deduction

The latest tax overhaul did away with moving expense deductions for most people, but there are still possible tax consequences you need to know.

By Bill Camarda | American Express Credit Intel Freelance Contributor

5 Min Read | June 26, 2020 in Life

 

At-A-Glance

The federal tax deduction for moving expenses is gone—unless you’re in the military, or you moved before 2018.

You might still have a state tax deduction, depending on where you live.

Even if you don’t, your employer, your credit card, or smart spending strategies may help you save.

Until recently, relocating to start a new job or to seek work in another city was a little less costly thanks to the federal moving expense tax deduction. But the 2017 Tax Cuts and Jobs Act (TCJA) eliminated the moving expense deduction for most taxpayers.1 There are some exceptions, and certain states still permit the deduction on state income tax returns.

 

Here’s what you need to know to figure out if you still qualify to deduct any moving expenses—and how you can still save, even without a deduction.

 

Can I Still Deduct Moving Expenses on My Federal Tax Return

The TCJA tax overhaul eliminated many specific deductions starting on January 1, 2018. One of these was the moving expense deduction—with one big exception: You still qualify if you’re an active-duty member of the military.2 And, the moving tax deduction still applies if you moved before December 31, 2017. By now, you’ve probably taken those tax benefits if you’re eligible for them. But if you haven’t, it might be worth revisiting your return. The IRS says you can usually amend a return for three years after you filed it, or two years after the date you paid the tax, if that’s later.3 So don’t wait: you’re running out of time to amend a return filed in 2018 for a 2017 move.

 

What If You Do Still Qualify for a Moving Tax Deduction?

If you do still qualify for a federal moving expense deduction, here are some key things to know:

  • What’s deductible: Only costs specifically related to your move are tax deductible, including packing, shipping, travel, interim lodging, storage unit, rental truck, supplies, and parking costs; but not meals you ate on the way, for example, or the costs of shopping for a new home.
  • Not if reimbursed: You can’t deduct expenses if your employer reimbursed them.
  • Time and distance criteria: For civilians, your new job or assignment needed to be at least 50 miles further away from your old home than your previous one was. You needed to start it within a year before or after moving, and work at it for at least 39 weeks in the subsequent year. But you could still claim the deduction if you were moving back to the U.S. to retire, or couldn’t work due to death, disability, or a layoff that wasn’t your fault.
  • Military exemption: Active military service members required to move due to a permanent change of station, a move between duty stations, or a move from a final duty station to retirement, are exempted from distance and length-of-work requirements.4

 

 

Move Savings on State Income Tax Returns

Some states automatically update their income tax rules to follow whatever the federal government does, others update their rules by legislation, and a few go their own way. Accordingly, as of July 2019, only seven states still allowed a moving tax deduction and/or continued to exclude moving reimbursements from income:

  • Arkansas
  • California
  • Hawaii
  • Massachusetts
  • New Jersey
  • New York
  • Pennsylvania

Iowa excluded employer reimbursements from income in 2018, but now taxes them.5

 

Among states that have retained moving expense deductions, rules can vary. For example, New York and California still allow a moving expense deduction and exclude qualified employer moving expense reimbursements from income on your state return.6,7 It’s a good idea to check with your tax advisor or tax software to understand your state’s current rules, since they can change. For instance, after originally deciding to keep its moving expense deduction, Virginia reversed itself and eliminated it.8

 

Ways Your Employer Can Help

For many taxpayers on the move, the federal tax overhaul is a double whammy: If your employer reimburses the cost of your move, or offers you a relocation bonus, that’s now taxable income. What’s more, your employer can no longer claim your reimbursed relocation costs as a business deduction on its own tax return.9

 

Despite the additional costs, some employers have recognized that they need to go the extra mile to recruit or keep a valued employee. They’ve decided to compensate employees by “grossing up.” That means the employer tracks and reimburses your moving costs, and also pays the additional taxes resulting from their reimbursement. Larger companies often use specialist relocation management firms to help with the paperwork.10 If you’re being asked to move, it’s worth asking your employer to consider doing this.

 

If All Else Fails: Savings, Points, and Rebates

If you don’t qualify for tax savings and your employer won’t “gross up,” there are still many finance-savvy steps you can take. First, you can look for ways to cut your own moving costs. Experts suggest:11,12

  • Do more yourself. Do more of your own packing, loading, and unloading if you can; use pros only for the tasks you can’t handle on your own.
  • Time your move. Professional moving costs are sometimes lower at mid-month, mid-week, during fall or winter, or even early in the morning.
  • Comparison shop. Professional mover costs can vary widely—and don’t forget to check their reviews, Better Business Bureau (BBB) ratings, and insurance.
  • Get free boxes. Often, you can get free boxes from your local grocery, liquor store, retailer, or library.
  • Move less stuff. Donate or sell belongings you no longer really need. Many people end up moving stuff they’ll never use, and then pay for unnecessary storage at their destinations.

 

For remaining moving expenses, use a credit card that offers you points or rebates. Some may even offer bonuses for moving-related spending—e.g., gas, airfare, temporary lodging, and moving supplies.13 Careful strategizing on the cards you use can meaningfully cut your costs, even if you can’t take a moving expense deduction.

 

And if that move is truly upon you, be sure to check out our two related checklist articles: “Moving Checklist: 5 Keys to Keeping Your Finances in Order” and “Moving out of State Checklist: 7 Tips for Cutting Costs.”

 

The Takeaway

Moving is expensive. Although the federal moving expense deduction has gone away, it’s important to use any state moving expense deductions you’re still eligible for, negotiate whatever employer benefits you can, and use proven strategies to cut your costs.

Bill Camarda

Bill Camarda has more than 30 years’ experience writing about business, technology, and finance. He is author or co-author of 19 books on information technology.

 

All Credit Intel content is written by freelance authors and commissioned and paid for by American Express. 

The material made available for you on this website, Credit Intel, is for informational purposes only and is not intended to provide legal, tax or financial advice. If you have questions, please consult your own professional legal, tax and financial advisors.