TIP OF THE MONTH - May 2008
EMPLOYEES ON THE MOVE
Many jobseekers are relocating and this always raises some tax questions. Essentially, for moving expenses to be deductible you must satisfy a distance test and a time test. The new place of employment must be at least 50 miles further than the distance between the previous worksite and the taxpayer’s old residence. (If a former job was 10 miles from the former home, the new job site must be at least 60 miles from the former home.) The time test requires a full time employee to work full time for at least 39 weeks during the first 12 months after arriving at the new location, but the weeks need not be consecutive, and the work need not be for a single employer. Self-employed individuals must not only meet the 39 weeks test, but are required to work at least 78 weeks during the first 24 months after arriving at the new location to qualify for moving expense deductions. There are special rules for seasonal workers and various exemptions that can reduce the required work time.
There are two types of qualified moving expenses that may be deducted. They are:
- costs of moving household goods and personal effects, and
- travel and lodging expenses (excluding meals) incurred while moving to the new residence.
If you use your car or a personal vehicle to transport people or belongings to the new location, the automobile expenses are deductible either based on the actual expenses incurred (fuel, tolls, but not repairs, depreciation, etc.) or at a standard rate which was 20 cents per mile for 2007. Reimbursements from the employer, for “qualifying” moving expenses are usually excluded from the employee’s gross income, but no deduction may be taken for reimbursed qualifying moving expenses unless they are included in the gross income. Reimbursements for unqualified moving expenses, reimbursement for loss on the sale of a home, for example, must be included by the employer in the employee’s gross income. Finally, moving expense reimbursements will be treated differently depending on whether the employer has an “accountable” or “nonaccountable” plan. If it is the former, the reimbursement are for qualified moving expenses; the employee must account to the employer for the expenses incurred, and excess reimbursement are required to be returned to the employer, and reimbursements other than for unqualified moving expenses are, generally, not included in the employee’s gross income. Conversely, if the employer plan is a “nonaccountable” plan, the employer reimbursements are usually included in the employee’s gross income.
The rules are quite complicated, and if you have made a job change this year and relocated, you might want to confer with Abo and Company to obtain some professional tax advice.