Many potential transferees find that they must turn down an otherwise lucrative job transfer due to the high cost of moving. Some employers choose to underwrite everything from helping an employee list and sell their current home, to handling all transfer-related details – including movers and travel – although not all expenses may be covered or reimbursed. This is where tax deductions come in very handy, enough so that they may make the difference between an employee enthusiastically accepting a transfer offer or turning one down.
One important note: only those qualified expenses not directly reimbursed by the employer may be deducted. Any reimbursed expenses or those paid directly to a vendor, such as a moving van company, are not deductible but usually are excluded as income. It is helpful for your company to provide this type of relevant tax information to the employee to assist them during tax filing season.
A professional relocation company should be able to guide transferees and employers through the process of determining deductibility.
An employee must meet three basic IRS requirements to consider deducting relocation expenses:
1. Starting Dates to Moving Dates
The IRS permits the deduction of qualified expenses incurred within one year from the time of actually starting work at the new location. Any moving expenses must occur within a year of the starting date to qualify as deductible.
2. Distance from Home and Work
According to the IRS, a new main job location must be at least 50 miles farther from the old home than the former job location was for the old home.
3. Length of Time Worked at Current (or New) Job
The IRS stipulates that employees "must have worked full time for at least 39 weeks during the first 12 months immediately following arrival in the general area of the new job location. If self-employed, the claimant must work full-time for at least 39 weeks during the first 12 months and for a total of at least 78 weeks during the first 24 months immediately following arrival in the general area of the new job location."
Although this written communication may address tax issues, it is not a covered opinion as described in Circular 230. Therefore, to ensure compliance with requirements imposed by the IRS, we inform you that any tax advice contained in this communication (including any attachments), unless expressly stated otherwise, was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any tax-related matter(s) addressed herein.
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