What You Need to Know About the Moving Expense Tax Deduction

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 is an exception for some active duty members of the Armed Forces,² and certain states still permit the deduction on state income tax returns.^3,4

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 who is ordered to move to a new, permanent change of station.¹

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.⁵
• Not if reimbursed: You can’t deduct expenses if the government reimbursed them or paid them directly.⁵

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.³

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 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.⁸

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.”^9,10 That means the employer tracks and reimburses your moving costs, and also pays the additional taxes resulting from their reimbursement. Larger companies may use specialist relocation management firms to help with the paperwork. If you’re being asked to move, it’s worth asking your employer to consider doing this.