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. 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. And the moving tax deduction still applies if you moved before January 1, 2018. 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.¹ So don’t wait: Presuming you filed your 2018 taxes by April 15, 2019, you have just a handful of months left to amend that return.

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.² Expenses reimbursed by the government can’t be claimed.

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.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.^4,5 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.⁶

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.⁷

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. If you’re being asked to move, it’s worth asking your employer to consider doing this.