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.
Section 132(g)(2) of the TCJA provides that the exclusion for qualified moving expenses in sections 132(a)(6) and 132(g)(1) does not apply for taxable years beginning after 31 December 2017 and before 1 January 2026. But it does not specify how payments or reimbursements in 2018 for 2017 moves are to be treated. The new Notice resolves that issue in favor of taxpayers by holding that the suspension of the deduction/exclusion applies only to payments or reimbursements for expenses incurred for moves that themselves occurred after 31 December 2017.
Consequently, if an employer pays a third party in 2018 for moving services provided to an individual prior to 1 January 2018, or reimburses an individual in 2018 for moving expenses incurred for a move prior to 1 January 2018, those payments and reimbursements are not includable in the employee’s income.
The Notice says the employers who have included such amounts in the wages of employees for purposes of employment taxes may either use the adjustment process under section 6413 or the refund claim process under section 6402 to correct the overpayment of federal employment taxes.
This transition issue had been the subject of considerable uncertainty and was resolved in different ways by employers. The new Notice is a welcome clarification by the IRS that will enable employers and employees to avoid taxes on relocation payments made in 2018 for 2017 moves.