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Intuit
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Create a payroll item for Moving Expenses

Important update!

In December 2017, Tax Reform Bill (H.R. 1, Tax Cuts and Jobs Act) was passed and signed by the President. This legislation affects Moving Expenses.

H. R. 1 Section 11048 Suspension of Exclusion for Qualified Moving Expense Reimbursement

  • Suspended for taxable years 2018 through 2025, with exception for a member of the Armed Forces of the US on active duty who moves pursuant to a military order and incident to a permanent change of station.

H.R. 1 Section 10049 Suspension of Deduction for Moving Expenses:

  • Shall not apply to any taxable year beginning after December 31, 2017, and before January 1, 2026

We have defaulted tax tracking to be fully taxable to all taxes since this is now fully taxable. If you already have this item set up, you will need to go into the payroll item and manually update the tax tracking to be subject to all taxes.

Overview

Moving expenses can be a challenge to interpret. They may be considered a fringe benefit, or they may be supplemental wages. If they are a fringe benefit, some expenses are subject to tax, and others are not. They are part of the employee's total compensation for tax purposes, even though the employer has paid them on the employee's behalf.

In some cases, the employer will simply pay the employee a lump sum to cover anticipated costs. It is then up to the employee to pay for the moving expenses. The money paid is considered supplemental wages, much like a bonus. Taxes are withheld at the time of payment. In a case like this, the payment is in cash wages, and is not considered a fringe benefit.

If an employer pays for moving expenses under one of two circumstances, the funds are considered a fringe benefit:

  • The employer pays a third-party, such as a moving company directly.
  • The employer refunds an employee for moving-related expenses.

If either of the two circumstances above exists, the funds must be reported through payroll as a fringe benefit.

For more information on Fringe Benefits, please visit:

Details

Before beginning, be sure to verify the type of moving expense you have, qualified or non-qualified. This is important because you may have to enter the benefit on two lines of the paycheck:

  • One for qualified moving expenses that are not subject to tax
  • One for non-qualified moving expenses that are taxes as income

Defining Moving Expenses

What is Qualified Moving expenses?

Important: This payroll item is no longer allowed after the HR.1 Tax Cuts and Jobs Act, effective 1/1/2018. This will increase the taxable wages on the paycheck and will NOT flow to the W2 box 12 with code P.

Qualified Moving Expenses Paid to a Third Party (such as a moving company):

  • The benefit must be reported, but is not subject to tax
  • Reporting is required so that the benefit can be included on the W-2 in box 12 with a P code
  • Funds are not included in box 1 of the W-2 as income

Qualified Moving Expenses include:

  • Costs to move possessions
  • Storage during transition (limited time allowed)
  • Travel and lodging expenses directly related to the move (time and distance tests apply)

To learn more about how taxes apply to moving expenses, please refer to a tax professional or the following IRS resources:

What is Non-Qualified Moving Expenses?

  • Regardless of how the amounts are paid, is fully taxable as income.
  • Funds are included in boxes 1, 3, & 5 of the W-2 as income

Non-Qualified Moving Expenses include:

  • Meals
  • Travel and lodging not directly associated with the move
  • Temporary living expenses

To learn more about how taxes apply to moving expenses, talk to a tax professional or check these IRS resources:

Use this table to help determine how to report moving expenses:

Qualified Moving Expense Non-Qualified Moving Expense
Employee Reimbursed Report in payroll as a cash fringe benefit (in only, not subject to tax) Report in payroll as a cash fringe benefit (in only, fully taxable)
Paid Directly to Service Provider Do not report in payroll Report in payroll as a non-cash fringe benefit (in/out, fully taxable)

 

Creating Payroll items for Moving Expense

Create a Qualified Moving Expense payroll item to reimburse an employee

This payroll item is no longer allowed after the HR.1 Tax Cuts and Jobs Act, effective 1/1/2018. This will increase the taxable wages on the paycheck and will NOT flow to the W2 box 12 with code P.

  1. From the Lists menu, select Payroll Item List.
  2. Select the Payroll Item button then New.
  3. Select Custom Setup, then Next.
  4. Select Addition, then Next.
  5. Enter a name for the addition payroll item such as Qualified Moving Expense, then Next.
  6. Choose an Expense Account then Next.
  7. From the drop-down, choose Qual. Moving Expense as the Tax Tracking type then select Next.
  8. In the Taxes window, the taxes should automatically be set up based on the Tax Tracking type chosen on the previous screen. These should not be changed.
  9. Select Next.
  10. On the Calculate Based on Quantity window, choose Neither then select Next.
  11. If the Gross vs. Net and Default rate and limit screens appear, fill in the information as needed and select Next.
    • Generally, if the amount is a percentage (%) of employee's gross earnings, select gross, if it is a fixed dollar amount select net. Gross vs. net affects reports, but taxability of item is based on tax tracking type selected, not by gross vs. net calculation.
  12. Select Finish.

NOTE: We have defaulted tax tracking to be fully taxable to all taxes since this is now fully taxable. If you already have this item set up, you will need to go into the payroll item and manually update the tax tracking to be subject to all taxes.

Create a Non-Qualified Moving Expense payroll item to reimburse an employee

This payroll item will increase the taxable wages on the paycheck.

  1. From the Lists menu, select Payroll Item List.
  2. Select the Payroll Item button then New.
  3. Select Custom Setup, then Next.
  4. Select Addition, then Next.
  5. Enter a name for the addition payroll item such as Qualified Moving Expense, then Next.
  6. Choose an Expense Account then select Next.
  7. From the drop-down, choose Other Moving Expense as the Tax Tracking type then select Next.
  8. In the Taxes window, the taxes should automatically be set up based on the Tax Tracking type chosen on the previous screen. These should not be changed.
  9. Select Next.
  10. On the Calculate Based on Quantity window, choose Neither then select Next.
  11. If the Default rate and limit screens appear, fill in the information as needed and select Next.
  12. Select Finish.

Create a Non-Qualified or Qualified Moving Expense payroll item if the employee has already received the money

This type of payroll item, when added to a paycheck, will add the value of payroll item to be reported or taxed appropriately, but not increase net pay.

  1. From the Lists menu, select Payroll Item List.
  2. Select the Payroll Item button then New.
  3. Select Custom Setup, then Next.
  4. Select Addition, then Next.
  5. Enter a name for the addition payroll item such as Qualified Moving Expense or Non-Qualified Moving Expense then Next.
  6. Choose a Liability and Expense Account, then Next.
  7. From the drop-down, choose Qual. Moving Expense (for Qualified Moving expenses) or Other Moving Expense (for non-qualified moving expenses) as the Tax Tracking type then select Next.
  8. In the Taxes window, the taxes should automatically be set up based on the Tax Tracking type chosen on the previous screen. These should not be changed.
  9. Select Next.
  10. On the Calculate Based on Quantity window, choose Neither then select Next.
  11. If the Default rate and limit screens appear, fill in the information as needed and select Next.
  12. Select Finish.

Important: Company Contribution payroll items used when creating paychecks will show positive balances in your Payroll Liability Balance report. If you have already paid the amount of Moving Expenses, and wish to zero out the balances showing as owed, you will need to do a company level liability adjustment. For instructions see Adjust payroll liabilities.

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