The IRS recently issued Notice 2018-75 which explains how moving expenses incurred in 2017, but paid in 2018 need to be treated with regards to W-2 reporting. Many companies had been taking a very conservative approach on these types of expenses and treating costs for things like household goods shipments, storage fees, and final trip travel expenses incurred in 2017, but not paid until 2018, as taxable. They had included them as wages on employee's W-2s and most companies had also decided to "gross-up" those expenses to cover the tax burden (at least to some extent) for the employee.
But with this ruling, the IRS is allowing for these 2017 moving expenses to be considered non-taxable and stated that they do not need to appear as taxable wages on the 2018 W-2. This clarification, while it could have been helpful to have had much earlier in 2018, would allow companies to reconsider their approach on those types of expenses and seek to reverse the transactions to reduce employee wages and save money if the company had grossed them up.
Senior Director of Finance at Plus Relocation, Angela Sieber agreed that "while it would have been nice to have had this clarification sooner, the bright side is that we still have time to make these adjustments. So, we need to move quickly but this is a good thing."
Plus Relocation is helping our clients to identify, audit and revise the reporting on those expenses for employees reporting through on U.S. payroll. We will be partnering with tax and payroll teams to make any adjustments before year-end cut-off dates. We would advise all corporate mobility teams to do the same for their programs.
While there are a few states holding out, but Maine and South Carolina have just conformed their state tax law to the Internal Revenue Code (Code) as amended by the Tax Cuts and Jobs Act (TCJA) of 2017. Neither acted to exclude the elimination of the deduction/exclusion for moving expenses from the legislation, so moving expenses will not be deductible or excludable in those states beginning in 2018, and continuing through 2025. See this for further details from Worldwide ERC.
The Notice resolves a transition issue under the 2018 Tax Cuts and Jobs Act (TCJA) that had caused considerable uncertainty. The new law suspended the moving expense deduction/exclusion during the period 1 January 2018 through 31 December 2025. It was unclear whether payments made or reimbursements received in 2018 for 2017 moves would be subject to the new or old law.