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I relocated new job and was reimbursed moving expenses this

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I relocated for a new...
I relocated for a new job and was reimbursed for my moving expenses this summer. Now my employer is telling me that I will have to pay federal income taxes on my reimbursement and they will take it out of my final check this year. I have never been taxed on a reimbursement before. Is this legal? After all I was already taxed on that money when I made it the first time.
Submitted: 2 years ago.Category: Tax
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12/15/2015
Tax Professional: Lane, JD, CFP, MBA, CRPS replied 2 years ago
Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 13,283
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
Verified

Hi,

...

Yes this is legal ... (I hold a JD - Juris Doctorate, a doctoral degree in the law - as well as an MBA with specialization in finance and tax)

...

This likely means that your new company doesn't use what's called an "accountable plan," which allows the reimbursement to be tax free

...

HOWEVER, as long as the move qualifies for the deduction, you can take an above the line deduction (comes before AGI on the front of the return, so you don't have to itemize to take the deduction) ... which will have the same effect (reduce your taxable income by that amount)

...

a "qualified move" as defined by the Internal Revenue Service, requires the following:

  • The move must be closely related in both time and place to the start of work at a new job location (work-related test).
  • The distance between the employee's new principal place of work and old residence must be at least 50 miles greater than the distance between the old principal place of work and old residence, and the employee's commuting distance must have increased by at least 50 miles (distance test)
  • In the 12-month period following the move, the employee must be a full-time employee for at least 39 weeks in that location or meet a qualified exception to the time limit (time test).
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Tax Professional: Lane, JD, CFP, MBA, CRPS replied 2 years ago

you can read more about Accountable and Non-accountable plans for for reimbursements here: https://www.irs.gov/publications/p15/ar02.html#en_US_2015_publink1000202319

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Tax Professional: Lane, JD, CFP, MBA, CRPS replied 2 years ago

From there:

...

Nonaccountable plan. Payments to your employee for travel and other necessary expenses of your business under a nonaccountable plan are wages and are treated as supplemental wages and subject to income, social security, Medicare, and FUTA taxes.

...

Accountable plan. To be an accountable plan, your reimbursement or allowance arrangement must require your employees to meet all three of the following rules.

...

  1. They must have paid or incurred deductible expenses while performing services as your employees. The reimbursement or advance must be payment for the expenses and must not be an amount that would have otherwise been paid to the employee as wages.

  2. They must substantiate these expenses to you within a reasonable period of time.

  3. They must return any amounts in excess of substantiated expenses within a reasonable period of time.

...

Amounts paid under an accountable plan are not wages and are not subject to income, social security, Medicare, and FUTA taxes.

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Tax Professional: Lane, JD, CFP, MBA, CRPS replied 2 years ago

And here's an excellent overview of this by Intuit:

...

https://ttlc.intuit.com/questions/2117559-can-i-claim-relocation-expenses-paid-by-employer-they-were-all-included-on-my-w-2-in-box-1

...

Let me know if you have questions

...

Lane

..

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Tax Professional: Lane, JD, CFP, MBA, CRPS replied 2 years ago

Hi,

...

Just checking back in. Did you see my answer?

...

If this HAS helped, (and you don't have any other questions on this), I'd really appreciate a positive rating (using those stars on your screen) … That's the only way I'll be credited with a portion of what you've paid JustAnswer.com

...

But again, if you need more here, let me know

...

Thanks

Lane

.

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