Tax Reform Eliminates the Moving Expense Deduction

3/1/2018


Please see the update below from our GCFA Legal Services Department

The Tax Cuts and Jobs Act (the “Act”) made numerous changes to the taxation of both individuals and organizations. Several of the changes relate to deductions available to individuals. One such change that has possibly received less attention involves moving expenses.
 
As outlined extensively in the IRS’s Publication 521, the “deduction of certain moving expenses to a new home because [the taxpayer] started or changed job locations” has been an available deduction, and it is created by Section 217 of the Tax Code. In addition to the available deduction, another section of the Code – Section 132(g) – provides that the reimbursement of qualified moving expenses by an employer will not be treated as a taxable fringe benefit. In other words, if the employee would be able to take the moving expense as a deduction, the employer could pay for those expenses on a tax-free basis.
 
Unfortunately for those who will incur moving expenses that would meet the deductibility standards outlined in Publication 521, the Act has suspended the application of Sections 217 and 132(g) from January 1, 2018 through December 31, 2025. The end result of this suspension is that (1) moving expenses incurred during that time period will not be a deductible expense (except for certain members of the Armed Forces) and (2) any reimbursement by, or payment of, these expenses by an employer during the same time period will need to be reported as taxable income to the employee (again, except for certain members of the Armed Forces).
 
Thus, for example, if a local church covers some or all of the moving expenses of an employee, such as its pastor, the church will need to report that amount on Form W-2 as taxable income to the employee. And, as another example, if the payment of moving expenses is made by an annual conference on behalf of a pastor serving a local church, the conference will likely need to issue that pastor a Form 1099-MISC reflecting the amount paid (the instructions to Form 1099-MISC state Box 7 should include “taxable fringe benefits for nonemployees,” which will presumably include moving expenses for the years during which Sections 217 and 132(g) are suspended).

Under the old tax law, taxpayers could deduct the reasonable costs of moving household goods and personal effects, along with the travel costs of moving to the new home (excluding meals) if they qualified.

Under the prior moving expense deduction rules, you could qualify if:  
  • Your employer can’t have reimbursed the moving costs and excluded the reimbursement from your income.
  • Your new work location was a certain distance from your former home (varies by circumstance).
  • You must have worked a minimum amount of time in the first one or two years after your move, depending on your employment status. Special rules applied to members of the armed services.
The latest tax reform  suspends the moving expense deduction

This change goes into effect for tax years beginning after December 31, 2017, through December 31, 2025. This means you will not be able to deduct moving expenses starting in tax year 2018. The only exception to the new law is for taxpayers who are members of the military on active duty who move pursuant to a military order.

If you moved during 2017, you can still deduct moving expenses on your 2017 tax return filed in 2018.

Implications

1. If a church pays for a Pastor's moving expenses this year, that must be reported in Box 1 of the W-2
2. They must be reported as "other cash compensation" on the CFSW since they would be part of pension "plan compensation"


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