Did you move to take a new job this year, or are you considering moving for work soon?
According to the U.S. Census Bureau, just over 12% of the more than 32 million people who relocated in 2019 did so because of a new job or job transfer. If you’re one of them, you may have heard moving expenses are tax-deductible and want to know how you can benefit.
Unfortunately, thanks to the Tax Cuts and Jobs Act (TCJA) of 2017, moving expenses are no longer deductible for most people. However, the deduction is still available for some taxpayers, and there are other ways to offset the cost of moving. But how you offset your expenses depends on whether you’re filing under the old rules or new rules.
Deducting Moving Expenses: The Old Rules
For 2017 and prior, taxpayers can deduct moving expenses if they meet the following requirements:
- Related to the Start of Work. The move must be related both in time and place to the start of work in a new location. Relocating expenses incurred within one year from the date you report to work are generally considered to be related in time. Expenses are related in place if the distance from your new home to your new job is not greater than the distance from your old home to your new place of employment.
- Distance Test. Your new job location must be at least 50 miles farther from your former home than the distance from your former home to your former job. If you did not have a job, then the new place of employment must be at least 50 miles from your former home.
- Time Test. There are different time tests if you’re an employee versus self-employed. If you’re an employee, you must work full-time for 39 weeks in the first 12 months following your arrival in the area of your new job. If you’re self-employed, you must work 39 weeks in the first 12 months and 78 weeks in the first 24 months following your arrival in the area of your new work location.
Note: If you’re married and filing a joint return, either you or your spouse can meet the time test, but you cannot meet the test by adding your weeks of employment to your spouse’s weeks of employment.
Exceptions to the Time Test
There are several situations in which you do not need to meet the time test, including:
- Your primary job location was outside the U.S., and you moved to the U.S. because you retired.
- You are the survivor of someone who worked abroad at the time of their death, and you moved to the U.S.
- Your job in the new location ends because of death or disability.
- Your employer transfers you for their own benefit or terminates your employment for a reason other than willful misconduct as long as you were working full time and expected to be employed long enough to meet the time test.
- You are in the U.S. armed forces, and you moved because of a permanent change of station. A permanent change of station includes moving from your home to your first post of active duty, from one post of duty to another, or from your last post of duty to your home or a nearer point in the U.S. This definition applies whether military members buy or rent a home.
Deductions You Can Take Under the Old Rules
For moves in 2017 and earlier, if you met the above tests, you can deduct the following expenses:
- Moving your household goods and personal effects, including packing, crating, and transporting as well as in-transit storage
- Connecting or disconnecting utilities
- Shipping your car or pet
- Traveling (transportation and lodging, but not meals) to your new home (as long as you travel by the most direct route). The IRS doesn’t consider side trips for sightseeing or visiting relatives or friends part of the move. If you drive your own car, you can deduct either actual expenses (if you keep an accurate record) or a standard mileage rate. For 2017, that rate is 17 cents per mile driven. With either method, you can also deduct tolls and parking expenses. You cannot deduct general auto repairs or maintenance, insurance, or depreciation.
If your employer reimburses any of the above expenses and does not include the reimbursement as taxable income on your W-2, you cannot deduct those expenses on your return. Similarly, if your employer reimbursement is greater than the cost of your move, you must include the excess in your taxable income.
Deducting Moving Expenses: The New Rules
The TCJA suspended moving expense deductions for tax years 2018 through 2025 for all nonmilitary taxpayers. Active-duty military members who move due to a permanent change of duty station can still deduct moving expenses. A permanent change of station includes a move from your home to your first post of active duty, from one post of duty to another, or from your last post of duty to your home or a nearer point in the U.S. If you use your own car to drive yourself, members of your household, or your personal effects to your new home, you can either deduct actual expenses or a standard mileage rate of 17 cents per mile (for 2020 moves).
If you qualify, use Form 3903 to calculate your moving expense deduction. If you need help determining whether you can deduct your moving expenses, check out the IRS moving expenses deduction tool.
Also, while the federal government has suspended the deduction for moving expenses, some states still allow taxpayers to claim a deduction on their state income tax returns, so check the state tax laws where you live. The American Institute of Certified Public Accountants maintains a list of each state’s department of revenue.
Employer Reimbursements for Moving Expenses
Some employers offer relocation assistance to help existing employees relocate to a new city for work or to woo talent from outside their geographic area. However, this form of employee benefit is not very common.
According to the Society for Human Resources Management, only 34% of employers offered a lump-sum payment toward moving expenses to employees in 2019. And only 18% reimbursed the cost of shipping an employee’s household goods.
Before 2018, an employer could pay for or reimburse an employee’s qualified moving expenses. The payment was a tax-free fringe benefit, meaning they didn’t include it in the employee’s taxable income for the year. However, under the TCJA, employers must now include all moving expenses in an employee’s wages, and the payments are subject to income and employment taxes. Members of the U.S. armed forces can still exclude qualified moving expense reimbursements from their income if:
- They are on active duty
- They move pursuant to a military order and incident to a permanent change of station
- Their moving expenses would qualify as a deduction if they didn’t get a reimbursement
In light of the deduction changes, it’s a smart move to negotiate a relocation package from your employer whenever possible. According to HomeAdvisor, a cross-country move typically costs anywhere from $2,417 to $6,211, depending on the size of your home and how far you’re moving. It can cost even more if you hire a moving company to handle everything from packing and cleaning to unpacking boxes in your new home.
If your employer is willing to reimburse those costs, you’ll pay income and payroll taxes on the reimbursement, but you’ll still be better off than you would be if you covered the entire cost out of your own pocket.
Plus, some employers will “gross up” their moving expense reimbursements to counteract the fact that reimbursements are now taxable — meaning they’ll give an employee more money than necessary for the move to cover the added taxes.
Moving is a hassle, and with moving expenses no longer providing a tax break for most taxpayers, there’s less incentive to relocate for a new job — at least for now. However, both the moving expense deduction and the moving expense reimbursement exclusion are set to return as of Jan. 1, 2026, as long as Congress doesn’t decide to make the change permanent.
In the meantime, you can still take steps to save on your move by doing most of the work yourself and shopping around to compare prices. And don’t forget to negotiate a relocation package from your employer. That’s money in your pocket, even if the government takes a cut.
For more tax advice, check out our complete tax filing guide.
Did you move to take a new job this year? Did your employer offer relocation assistance, or did you cover the costs on your own?