Cuts and Jobs Act (TCJA) that passed U.S. Congress
in December and was effective January 1, 2018, suspends the moving expense deduction/exclusion
from 2018 through 2025.
Of the U.S. states with an income tax, all but three follow
the Internal Revenue Code (Code) to a considerable extent. That is, they begin
their state tax calculations with either federal Adjusted Gross Income (AGI) or
Taxable Income, with some additions/exclusions, etc.
This is called “conformity” in state tax parlance. However,
the states conform in two distinct ways:
Six static states have conformed their tax law to the Code
as revised. They are Georgia, Idaho, Ohio, Oregon, West Virginia, and
Wisconsin. Moving expenses are not deductible/excludable in those states
beginning in 2018.
Three static states have updated their conformity in ways
that allow the continued excludability of moving expense
payments/reimbursements. They are Arizona, Kentucky, and Virginia.
Virginia updated its conformity to include the Code as
revised in the TCJA, but then proceeded to “decouple” from (make inapplicable)
nearly all of the federal changes, including those for moving expenses.
Arizona updated its conformity only to the Code as of
January 1, 2017. But the legislature intends to revisit the issue later in the
year to consider the application of the TCJA.
Finally, Kentucky acted to deal explicitly with moving
expenses in its conformity legislation. Kentucky moved its conformity date from
December 31, 2015 to December 31, 2017. While this change would seem to have
left in place a deduction/exclusion for moving expenses because the law only
conforms as of the year prior to tax reform, the bill goes on to eliminate,
among other deductions, the deduction for moving expenses. However, it does not
specifically eliminate the exclusion from gross income for employer payments.
So Kentucky should remain a state in which moving expense
payments/reimbursements are excludable.
Static states that have not yet acted, and in which moving
expenses continue to be deductible/excludable are Arkansas, California, Hawaii,
Indiana, Iowa, Maine, Massachusetts, Minnesota, North Carolina, South Carolina,
one rolling conformity state has acted to keep the moving expense
deduction/exclusion: New York. The state’s new budget law specifically
decouples from some provisions of the TCJA, including the changes to the moving
expensed deduction/exclusion. Therefore, moving expenses remain
deductible/excludable in New York in 2018.
Two rolling conformity states have made changes to their tax
laws in order to retain the personal exemption, but neither acted to preserve
the moving expense deduction/exclusion. They are Michigan and Nebraska.
The other rolling conformity states are: Alabama, Colorado,
Connecticut, Delaware, Illinois, Kansas, Louisiana, Maryland, Missouri,
Montana, New Mexico, North Dakota, Oklahoma, Rhode, Island, and Utah. The
District of Columbia also practices rolling conformity. Moving expenses will
now be nondeductible/nonexcludable (taxable) in all of those jurisdictions
absent some future action by their governing bodies.
Finally, three states do not conform to the Code except on a
selective basis. They are Mississippi, New Jersey, and Pennsylvania. Moving
expenses are deductible/excludable in Mississippi and Pennsylvania, and
excludable in New Jersey. None of those states has changed its law since
enactment of the TCJA.
Worldwide ERC® members who gross up taxable relocation costs
for U.S. state taxes will need to follow this subject closely and adjust
gross-ups accordingly. At present, notwithstanding the change in the federal
law, moving expenses remain excludable from the incomes of transferees in 18