moving expense reimbursement chapter 58 employee benefit & retirement planning copyright 2009,...
TRANSCRIPT
Moving Expense Reimbursement
Chapter 58Employee Benefit & Retirement Planning
Copyright 2009, The National Underwriter Company 1
What is it?
Companies reimburse employees’ moving expenses for job-related relocation.
– Reimbursements are taxable income to employee
– Employee can deduct moving expenses from gross income
Moving Expense Reimbursement
Chapter 58Employee Benefit & Retirement Planning
Copyright 2009, The National Underwriter Company 2
When is it indicated?
Consider when consistent with recruitment and staffing needs since moving expense reimbursement provides substantial benefits to employees
Moving Expense Reimbursement
Chapter 58Employee Benefit & Retirement Planning
Copyright 2009, The National Underwriter Company 3
Advantages
1. Can induce prospective employee to change jobs
2. Larger companies can encourage employee mobility
3. Is a tax-free form of employee compensation
4. Employers have complete flexibility in plan design
Moving Expense Reimbursement
Chapter 58Employee Benefit & Retirement Planning
Copyright 2009, The National Underwriter Company 4
Disadvantages
1. Distance test requires new job to be at least 50 miles from employee’s former home to obtain deduction
2. Expenses for house hunting or selling, buying, or leasing a residence are not deductible
Moving Expense Reimbursement
Chapter 58Employee Benefit & Retirement Planning
Copyright 2009, The National Underwriter Company 5
Tax Implications
Employer tax treatment
1. Moving expense reimbursement to employees or third parties on behalf of employees is tax deductible IF meet reasonable compensation test
2. Must report reimbursement as compensation on employee’s W-2; tax does not have to be withheld
3. Plan can be discriminatory
Moving Expense Reimbursement
Chapter 58Employee Benefit & Retirement Planning
Copyright 2009, The National Underwriter Company 6
Tax Implications
Employee tax treatment
Moving expense is an above-the-line deduction (i.e. subtracted from gross income IF certain requirements are met:
• Distance test
• Time test
• Limits on types of expenses that are deductible
Moving Expense Reimbursement
Chapter 58Employee Benefit & Retirement Planning
Copyright 2009, The National Underwriter Company 7
Tax Implications
• Distance test
New main job is > 50 miles farther from home than old main job location was
• Time test
Employee must work full time at least 39 weeks during first 12 months after arriving at new job location
Moving Expense Reimbursement
Chapter 58Employee Benefit & Retirement Planning
Copyright 2009, The National Underwriter Company 8
Tax Implications
• Type of expenses deductible
Only reasonable costs for:
• Packing, crating, moving household goods and personal effects (incl. care and household pets)
• Storage and insurance for any 30-day consecutive period while between new and old home
• Travel to new home
Moving Expense Reimbursement
Chapter 58Employee Benefit & Retirement Planning
Copyright 2009, The National Underwriter Company 9
Tax Implications
• Nondeductible expenses:
– Home improvements to help sell old home
– Loss on sale of old home
– Mortgage penalties
– Forfeiture of club dues or entry fees
– Any part of purchase price of new home
– Real estate taxes
Moving Expense Reimbursement
Chapter 58Employee Benefit & Retirement Planning
Copyright 2009, The National Underwriter Company 10
Tax Implications
• Nondeductible expenses (cont’d)
– Car registration or driver’s license fees
– Reinstalling carpets or draperies
– Storage charges other than those expressly permitted
– Expenses for house hunting, selling, buying, or leasing a residence
Moving Expense Reimbursement
Chapter 58Employee Benefit & Retirement Planning
Copyright 2009, The National Underwriter Company 11
Tax Implications
Reporting by employee
To claim an expense deduction, regardless of reimbursement, employee must file Form 3903
NOT a pension or welfare benefit; ERISA provisions do NOT apply
ERISA and Other Implications
Moving Expense Reimbursement
Chapter 58Employee Benefit & Retirement Planning
Copyright 2009, The National Underwriter Company 12
Discussion Question
Explain how the moving reimbursement could be applied under these circumstances:
1. You change jobs and initially drive 160 miles round trip from your home for several years, then you move closer to your job.
2. You want to make sure that you don’t get an inadequate price on the forced sale of your home when moving.