By Bill Camarda | American Express Credit Intel Freelance Contributor
5 Min Read | June 26, 2020 in Life
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.
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.
If you do still qualify for a federal moving expense deduction, here are some key things to know:
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:
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
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 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
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.”
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.
1 “How Tax Reform Affects IRS Moving Deductions,” Moving.com
2 “Can I Deduct Moving Expenses on My Taxes in 2019,” Doorsteps.com
3 “Amending Your Tax Return: Ten Tips,” Internal Revenue Service
4 “The Moving Expenses Tax Deduction,” The Balance
6 “Alert: Highlights of NYS Personal Income Tax Changes,” Grassi & Co.
7 “Tax Information Changes to Moving and Relocation Expenses,” The California State University
11 “Moving? What you should know about the suspended moving expense deduction,” CreditKarma.com
12 “How Tax Reform Affects IRS Moving Deductions,” Moving.com
13 “Moving? Use a credit card to rack up major points, rewards,” CreditCards.com