U.S. Internal Revenue Service Clarifies 2018 Reporting of Moving Expenses

In an addition to its “Frequently Asked Questions” about moving expenses on 7 February, 2019, the IRS said that excludable 2018 payments for 2017 civilian moving expenses should not be reported in Box 12P of the 2018 W-2 form.  That space should only be used to report military moving expenses, which remain excludable for 2018 moves.  For the FAQ, go to https://www.irs.gov/newsroom/frequently-asked-questions-for-moving-expenses.  

Confusion arose after IRS in Notice 2018-75 announced that payments or reimbursements in 2018 for 2017 moving expenses remained excludable on 2018 returns despite the suspension of the exclusion by the 2017 Tax Cuts and Jobs Act (TCJA).  For the Notice, go to https://www.irs.gov/pub/irs-drop/n-18-75.pdf.  

In prior years, when some moving expenses were deductible under section 217 and excludable under section 132, the deductible/excludable portion of such expenses was included in Box 12P on the Form W-2, except for expenses of moving household goods that were paid directly to moving companies, which were not reported at all.  

However, the TCJA suspended the deduction/exclusion for all taxpayers except active duty military for 2018 through 2025.  Notice 2018-75 created an exception for expenses incurred in 2018 for moves in 2017.  As companies began to prepare Forms W-2, questions arose as to whether such expenses should be accounted for by continuing to include them in the Box 12P.

Although the IRS has now answered that question, the answer comes too late to avoid some problems.  It has been reported that some tax filing services or tax software packages have rejected Forms W-2 with an entry in Box 12P for a civilian employee.  Most tax advisors had assumed prior to the new FAQ that the Box 12P should still be used for expenses excluded under Notice 2018-75, and it is likely that companies with expenses that fell into this category did so.  It may now be necessary for those companies to issue Forms W-2c for those employees.  

How This Impacts Mobility

Worldwide ERC® members who paid for 2017 moving expenses in 2018 and accounted for them by listing them as excluded moving expenses in Box 12P of the 2018 Form W-2, may now need to issue Forms W2c to affected employees in cases where the original Form W-2 has been rejected by tax service providers.  They may also want to provide such employees with a listing of the expenses that were incurred and excluded.

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