Tax me
March 18, 2014 7:38 AM   Subscribe

How do relocation expenses paid directly to a 3rd party work on your taxes (US)? We received the relocation expense breakdown from employer today and there is about $15,000 listed as w-2 reportable income, that was strictly the cost paid directly to the movers. Will we be paying taxes on that? Will our total income be our regular taxable income plus this $15000? Should we start having more taxes taken out of the paycheck to avoid any yucky surprises next year at tax time? Everything I find online talks about deductible expenses, but I don't see how that even applies to this situation because we weren't reimbursed for anything, the employer handled everything with the movers directly. We meet all the requirements for qualified moving expenses (time, distance and start of work), but again, don't know where that fits in. This will apply to the 2014 taxes, so we have plenty of time to get a better grasp of how it works. You are not my CPA or TA (we may get one, but I would still like to understand and prepare accordingly if we will be getting pounded at tax time).
posted by MayNicholas to Work & Money (16 answers total)
You can deduct your moving expenses (if you meet the criteria), so it should balance out since they counted it as your income. Just make sure you get a receipt.
posted by blue_beetle at 7:42 AM on March 18, 2014 [2 favorites]

Response by poster: So the money the employer paid counts as a moving expense? I read your link, we meet the criteria, but still confused. I understand what it says, but unclear because it is not an 'expense' that we paid out of our own pockets. Thanks, and sorry for being so daft.
posted by MayNicholas at 7:48 AM on March 18, 2014

Get an accountant firm or CPA to do your taxes for 2014, at least. Improper deductions are probably pretty common audit flags, and who needs the hassle?
posted by RedOrGreen at 7:51 AM on March 18, 2014

Response by poster: Promise not to threadsit anymore...
we will get someone to do our taxes, but this is about being prepared for next tax season and possibly having more withheld now if we need to.
posted by MayNicholas at 7:56 AM on March 18, 2014

OK, I am not a CPA, but I believe what's going on here is that the money your employer paid as relocation expenses counts as income, but it's going to be deductible. It's like if your employer gave you an additional $15,000 bonus but you spent it all on moving. So it will be reported as W-2 income but, assuming you meet the requirements in the document blue_beetle links to, it is going to be deductible and you won't actually end up paying taxes on it.

Will we be paying taxes on that? Assuming you meet the requirements for it being deductible, no.
Will our total income be our regular taxable income plus this $15000? Yes.

You may even have additional expenses that you can deduct, for instance the cost of plane tickets or mileage that you personally incurred getting yourself to your new home.
posted by mskyle at 8:00 AM on March 18, 2014

Since it was added to your income, you should see additional taxes pulled out.

I went through a tuition remission experience several times with my employer. I would see money added to my gross income to pull out the necessary taxes needed to cover it. My take home pay was substantially less because I was paying significantly more in taxes, but then I got nearly all of that back at tax time.

What was added to your income --- you're already paying the taxes on that with each paycheck.
posted by zizzle at 8:00 AM on March 18, 2014

To answer your questions about what to do for future taxes, well, nothing...You may trigger a request to start paying quarterly, but you shouldn't have to since this is/was a one-time event, and the extra 15k will be written off your total tax impact will be negligible. As long as you have the correct number of withholdings on your W4 there's really nothing more you need do. However I am not an IRS agent, Taxman, Revenoor, or a member of the Trilateral Commission.
posted by Gungho at 8:09 AM on March 18, 2014

See IRS Publication 521:

Just because it shows up on your W-2 doesn't necessarily mean that it's taxable income.
posted by stowaway at 8:24 AM on March 18, 2014

Make an appointment now (or for the end of April, since they may be really busy the next few weeks) with the person that you plan to use as a tax preparer next year. They should be able to take a look at your records to ensure that things are being deducted the correct way. It will help if you have some post-move paystubs for them to compare. Hopefully your company is adjusting everything correctly, but you should double-check it because it is your money.
posted by soelo at 8:25 AM on March 18, 2014

What you do is you take the $15,000 and then, using the bills from your move, use those as a deduction.

Here is what your list should look like:

1. $ Paid to Moving Company (even if it was a direct payment)

2. Airfare to scout out places to move to.

3. $ Paid to realtors to sell house.

4. $ Paid to purchase new house (not down payment, but doc fees, and all that other closing nonsense)

5. Hotels used during move.

6. Milage if you drove from Point A to Point B.

7. Meals during move (including Donuts and McDonalds to the movers on moving day.)

8. Cost of packing materials, and any labor you may have used to get packed up.

Basically, you're going to debit as much as possible against that $15,000 credit.
posted by Ruthless Bunny at 8:26 AM on March 18, 2014


Also, any fees you paid to start utilities. I mean EVERYTHING!
posted by Ruthless Bunny at 8:27 AM on March 18, 2014

From my recollections the last time I moved and got (partial) reimbursement directly from my employer, mskyle has it right. Your W-2 will show $15,000 with code "P" in a special box. When tax time comes, you'll fill out Form 3903, which compares the amount the company gave you to the amount that you spent (and/or was spent on your behalf.) If you spend less than $15,000, then the remainder is taxable income (and gets added to line 7 on your 1040.) If you spend more, then the excess amount you spent can be deducted from your total income (line 26) and so you won't be taxed on it.

Publication 521 details which expenses are deductible and which are not. Note that Ruthless Bunny's list contains some things that are specifically disallowed by the IRS (at least as moving expenses — for all I know they may qualify as deductions somewhere else on your 1040):

2. Airfare to scout out places to move to.

3. $ Paid to realtors to sell house.

4. $ Paid to purchase new house (not down payment, but doc fees, and all that other closing nonsense)

7. Meals during move (including Donuts and McDonalds to the movers on moving day.)

So, um, don't deduct those.
posted by Johnny Assay at 8:37 AM on March 18, 2014 [1 favorite]

Best answer: The portion of the payment to the third party representing qualified moving expenses will not be included or reported on the W-2; any portion representing nonqualified moving expenses will be included in your taxable wages and be subject to income and payroll taxes. Any amounts paid to you directly are reported in box 12 (code P) of the W-2.

(this is assuming your company reports things correctly)

posted by melissasaurus at 11:00 AM on March 18, 2014

Response by poster: According to the above link and quotation, those expenses should not be reportable on W-2, however the excel sheet they provided us with today has it listed as reportable income. Could this mean an error on their part?
posted by MayNicholas at 11:19 AM on March 18, 2014

It's possible they're treating it as a payment to you rather than a payment to the third party. Ask your payroll department.
posted by melissasaurus at 11:24 AM on March 18, 2014

Response by poster: Update:

Thanks to all those who replied. Checked with HR for clarification after melissasaurus' s link to reporting guidelines. Turns out, HR made an error. What the employer paid to the movers is not reportable income for us!
posted by MayNicholas at 8:38 AM on March 19, 2014 [1 favorite]

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