U.S. State Conformity to Tax Reform Moving Expense Change

In May of 2018, Worldwide ERC® published an article detailing how the various states had so far reacted to the suspension of the deduction/exclusion for moving expenses in the Tax Cuts and Jobs Act (TCJA) that took effect on 1 January 2018. Worldwide ERC® also addressed the issue in an article published in the August issue of Mobility Magazine.

Since that time, other states have acted. This article provides a current scorecard.  

States that conform to federal tax law do so in two ways. Some automatically adopt changes unless the legislature acts to reject them (called “rolling” conformity). Others adopt the all or part of the federal tax code as of a specific date and must act to update the state conformity date each time the federal law changes (called “static” conformity).

Static Conformity States

Ten states have conformed to the disallowance of the moving expense deduction/exclusion (up from six in the May report). The states added are italicized.  

  • Georgia
  • Idaho
  • Indiana
  • Iowa
  • North Carolina
  • Ohio
  • Oregon
  • Vermont
  • West Virginia
  • Wisconsin

However, Iowa’s conformity does not take effect until 2019, so moving expense reimbursements/payments remain excludable from Iowa income in 2018.

Four states have updated their conformity in ways that allow the continued excludability of those payments/reimbursements. They are:

  • Arizona
  • Hawaii
  • Kentucky
  • Virginia

Hawaii was the only state added to this list since the May report.

In addition, six static conformity states have not (yet) acted. They are:

  • Arkansas
  • California
  • Maine
  • Massachusetts
  • Minnesota
  • South Carolina

Consequently, moving expenses remain excludable in those states. However, California, Maine, and South Carolina are actively considering conformity legislation.

Related: U.S. Treasury Proposes Regulations to Stop Workarounds of State & Local Tax Deduction Limit

Rolling Conformity States

There has been no change to this group since the May report. As of that time, New York had acted to retain the moving expense deduction exclusion, opting out of that part of TCJA.

The other rolling conformity states (and the District of Columbia), in which moving expenses are no longer deductible/excludable as of 2018 are:

  • Alabama
  • Colorado
  • Connecticut
  • DC
  • Delaware
  • Illinois
  • Kansas
  • Louisiana
  • Maryland
  • Michigan
  • Missouri
  • Montana
  • Nebraska
  • New Mexico
  • North Dakota
  • Oklahoma
  • Rhode Island
  • Utah

Three Non-Conformity States

Mississippi, New Jersey, and Pennsylvania do not conform to the Internal Revenue Code except on a selective basis. None have changed their law since enactment of the TCJA.

Consequently, moving expenses remain deductible/excludable in Mississippi and Pennsylvania, and excludable (but not deductible) in New Jersey.

The September Scorecard

Aggregating the data above, as of early September 2018, moving expenses remain excludable in 14 states, listed below. Those which are subject to possible change later in the year are italicized.

  • Arizona
  • Arkansas
  • California
  • Hawaii
  • Iowa
  • Kentucky
  • Maine
  • Massachusetts
  • Minnesota
  • New Jersey
  • New York
  • Pennsylvania
  • South Carolina
  • Virginia

How This Impacts Mobility  

Companies must make decisions as to whether to gross up for moving expenses that are now taxable in 2018. This includes decisions as to how handle gross-ups for state taxes. The data in this article will assist companies to determine the states in which gross-up is not currently necessary, with a resulting savings in relocation dollars.

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