Employers Paying Moving Expenses (Tax Effect)
Employers may pay the moving expenses of an employee and this will have special tax treatment. Generally, employer-paid moving expenses paid to the employee are reported on the employee’s Form W-2. If you moved to a new location because of work this year, you may qualify to use IRS Form 3903 to claim the cost of your moving expenses as a deduction on your federal income tax return. Form 3903 is used to report any moving expenses during the calendar year. It must be attached to Form 1040 or Form 1040NR.
Employers handle employee moving expenses as follows:
- Deductible moving expenses paid by the employer to a third party or provided by the employer in-kind are not reported on Form W-2,
- Deductible moving expense reimbursements the employer pays directly to the employee are reported in box 12 of Form W-2 and identified with Code P, and
- Employer reimbursements for nondeductible moving expenses are included in the employee’s taxable wages reported in box 1 of Form W-2.
Employer Reimbursement of Moving Expenses Form 3903
When an employee is reimbursed for deductible moving expenses. the reimbursement is reported on Form 3903 along with all deductible moving expenses the employee incurred if the deductible moving expenses exceed the employer reimbursement. The excess expense is then carried to and deducted on line 26 of Form 1040. If reimbursed moving expenses exceed actual deductible expenses incurred, the excess is carried from Form W-2 to line 7 of Form 1040 and reported as additional taxable wages. This deduction is not subject to any limits, so you can claim all of your qualified moving costs if you meet the eligibility requirements.
Do not file Form 3903 if all of the following apply.
- You moved to a location outside the United States in an earlier year.
- You are claiming only storage fees while you were away from the United States.
- Any amount your employer paid for the storage fees is included as wages in box 1 of your Form W-2.
Filing IRS Form 3903
The taxpayer need not file Form 3903 if deductible moving expenses equal the amount of reimbursed moving expenses included in box 12 of Form W-2 . If an employee’s entire reimbursement is included in box 1 of Form W-2, Form 3903 should be filed with any allowable expenses included. Reimbursements received are not included on the Form 3903 when reported to the taxpayer as wages.
Form 3903 For Each Job
Online tax preparation software often has questions that can help taxpayers fill out the correct form for employer paid moving expenses. If a taxpayer has moved more than once for a job, then a separate Form 3903 is used for each qualifying move. Reasonable moving expenses, such as the cost of hotels visited while moving, can be deducted.