Moving Expenses Tax Change
As of January 1, 2018, all moving expense reimbursements are considered taxable income to the employee. This tax law change also applies to direct payments by an employer on behalf of the employee, such as payments by an employer to a moving company. As a result, all moving expenses paid by NDSU in tax year 2018 must be reported on employee’s payroll W-2 form as taxable income.
Because of this tax law change, effective immediately, the recommended process for moving expenses is to use the lump sum payment method via the HR/Payroll process. There is no longer an advantage for the department to collect the employee’s receipts and process moving expense reimbursements for audit through the Accounting Office (via the Travel Expense module) in order to avoid taxes for the employee. The account code (#521050) for “Moving Expenses – Nontaxable” has been inactivated.
The following guidance is to be used by departments in appropriately classifying expenses and reimbursable moving expenses under NDSU policy 171.
Departments have three options when it comes to paying for authorized moving expenses of a benefitted employee.
- A lump sum payment to the employee, or
- Reimbursing the employee for actual expenses incurred, and
- Paying the vendor directly for services provided
The lump sum payment option is not allowed to be used in combination with the other two payment options.
Pros and Cons:
The reimbursement method sometimes results in the employee not receiving reimbursement for all expenses promised by the hiring department because certain expenses may not meet the requirements.
It is the department’s responsibility to ensure the expenses claimed for reimbursement are consistent with the limits and guidelines defined by policy. In addition, the department should inform the employee of the limits and guidelines defined by policy. The department should work with the employee in choosing the most appropriate payment method in paying moving expenses before the move.
Tax treatment of an employee’s moving expenses are governed by the Internal Revenue Service. All moving-expense payments made to an employee or on an employee’s behalf are taxable income to the employee and will be reported on the employee’s Form W-2. For taxable reimbursements, federal and state income taxes, social security and Medicare taxes must be withheld.
Regardless of the payment method, new hires (not transferring from within the institution) reimbursement for relocation expenses should not exceed one month’s salary or $3,000, whichever is greater. Deviations from this rate must be approved by the President, and will only be granted in exceptional circumstances. (NDSU interpretation: this represents the upper limit, departments may offer a lessor amount.)
An employee should review the applicable policies, as well as the IRS tax treatment of moving expenses when determining which payment method would be most appropriate for them.
1. Lump sum payment to the employee:
A lump sum payment for moving expenses will be paid to the employee via the HR/Payroll Office and will be included in the employee’s gross pay; subject to applicable tax withholding and Form W-2 reporting. For more information about tax withholding please contact the NDSU HR/Payroll Office.
When the lump sum payment is added to the employee’s paycheck will be dependent on when the department submits the Change Form 101 with the payment information. The lump sum cannot be paid out prior to the employee’s first scheduled – payday since it is subject to FICA and income tax withholding.
Some of the moving expense payments the employee makes to vendors might qualify as deductible expenses on their tax return. The employee can use IRS Form 3903-Moving Expenses to calculate any moving expense deductions, along with reviewing IRS Publication 521, Moving Expenses. In accordance with IRS regulations, the University does not provide personal tax advice. For more information and to determine eligibility for the moving expense deduction the employee should contact a personal tax advisor or the IRS.
Paying a Lump Sum Payment to Employee for Moving Expenses
Before the move:
- Authorization for Moving Expense Reimbursement: The department requesting to pay a lump sum payment for moving expenses for an employee is required to seek approval, in advance, from the Dean or Director, and complete the Authorization for Moving Expense Reimbursement form.
Note: When submitting the Authorization for Moving Expense Reimbursement form to the Payroll Office, you must attach a completed Payroll Change Form 101 and provide a copy of the employment contract/offer letter that is created when hiring faculty.
- Inform the Employee: The department should inform the employee on the limits and guidelines defined by policy, as well as, the payments being subject to withholding and W-2 reporting.
2. Reimbursing the employee for actual expenses incurred and paying vendor(s) directly for services provide:
Reimbursing the employee for actual expenses incurred, can be used in combination with paying vendor(s) directly for services provided. The payment option of paying a vendor directly, for services provided, is used to pay for moving van companies only. If an employee has been authorized for an amount greater than $5,000.00 and the department is paying the moving company directly, please contact the Purchasing Office. If an employee is paying the moving company directly they should contact the Purchasing Office for state contract information. Payment of airfare, lodging, meals and other allowable miscellaneous expenses should first be paid by the employee and then reimbursed.
When using these two options together, keep in mind the amount authorized for the moving expenses, as it must not be exceeded in total.
The type of reimbursement plan NDSU uses is the Accountable Plan, as defined by the IRS, see IRS Publication 521, Moving Expenses.
Following are the general instructions and definitions:
- Pre-Move House Hunting Expense: (Per NDSU Policy Section 171, part 4.2) This category includes personal travel reimbursed to employee and spouse for arranging living accommodations; limited to one round trip; length of stay limited to three days; personal travel includes airline travel, or personal vehicle mileage, lodging, and meal expenses. Meal expenses in this category are based on either the employee per diem rates or actual cost of meals (if lower than per diem); No receipt is required for meal expenses if claiming per diem rates.
- Moving Personal Goods Expense/Moving Expense/Travel Expense: (Per NDSU Policy Section 171, part 4.3) Transportation expenses related to moving personal effects and household goods from old to new home. Transportation expenses are the actual costs of moving the personal belongings; may include moving supplies, gas and oil for rental van, storage costs, and moving van expenses may be paid by department or reimbursed to employee. (Per NDSU Policy Section 171, part 4.1) Travel, lodging and meal payments for expenses of the employee and “immediate family” while in transit from old to new home. “Immediate family” will be defined as someone who is a member of the employee’s household (i.e., anyone who has both the former and new home as his/her home.) This category includes airfare, mileage and lodging expenses while in transit to new locality. Meal expenses for the “immediate family” related to move from old to new home are based on either the employee per diem rates or actual cost of meals (if lower than per diem – receipt required); No receipt is required for meal expenses if claiming per diem rates. For mileage reimbursement, state policy allows reimbursement at employee rates, the amount above the IRS allowed moving rate will be taxed to the employee and reported to the IRS. Once destination is reached, temporary living quarters may apply.
- Temporary Living Quarters Expense: (Per NDSU Policy Section 171, part 4.1) Temporary Living Expenses includes expenses once the vicinity has been reached where new home is located; includes lodging, meals, and miscellaneous expenses of employee and immediate family. Expenses while in transit and in temporary living quarters must not exceed 10 days.
- Overall Amount Limitations: For permanent staff already employed by the University, for not less than one year, but transferring to a new work location within the state, reimbursement for the above expenses is limited to the lower of the amount pre-approved on the individual’s Authorization for Moving Expense Reimbursement form, or $5,000 (NDCC 44-08-04.3).
Paying for Employee’s Moving Expenses
Before the move:
- Authorization for Moving Expense Reimbursement: The department requesting to reimburse the employee or direct pay moving expenses for an employee is required to seek approval, in advance, from the Dean or Director, and complete the Authorization for Moving Expense Reimbursement form.
- Inform the Employee: The department should inform the employee on the limitations on such payments, as well as, inform them that the original itemized receipts will be required for reimbursements.
After the move:
- Employee reimbursements: The department will process an Accounts Payable Voucher; attach the applicable moving worksheets, copy of employment contract, authorization form and all necessary receipts/documentation.
- Employee: The employee will need to sign the applicable moving worksheets certification line “I hereby certify this itemized statement representing a reimbursement claim for moving expenses is truthful and accurate. All expenses claimed comply with my institution’s moving expense policy, as well as State Board of Higher Education Policy and the North Dakota Century Code.” Expenses claimed for reimbursement have not been paid by the state through direct payments or a state credit card, and have not been reimbursed or directly paid by an affiliated foundation or an outside entity.
NDSU Policy 171: Staff and Faculty Recruitment and Moving Expenses
SBHE Policy 806.2: Staff and Faculty Recruitment Expenses
SBHE Policy 806.3 Moving Expenses
NDCC Section 44-08-04.3 Moving expense - Allowances - Verification
Internal Revenue Service (IRS Publication 521, Moving Expenses, IRS Form 3903-Moving Expenses)