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Taxmap/pubs/p521-003.htm#TXMP756b79ab Reimbursements

Reimbursement

This section explains what to do when you receive a reimbursement (including advances and allowances) for any of your moving expenses discussed in this publication. It also explains the types of reimbursements on which your employer must withhold income tax, social security tax, and Medicare tax.

Taxmap/pubs/p521-003.htm#TXMP663667e6 Types of Reimbursement Plans

Types of Reimbursement Plans

If you receive a reimbursement for your moving expenses, how you report this amount and your expenses depends on whether the reimbursement is paid to you under an accountable plan or a nonaccountable plan. For a quick overview of how to report your reimbursement and moving expenses, see Table 2 in the section on How and When To Report, later.

Your employer should tell you what method of reimbursement is used and what records are required.

Taxmap/pubs/p521-003.htm#TXMP3a1f7e37 Accountable Plans

To be an accountable plan, your employer's reimbursement arrangement must require you to meet all three of the following rules.

1. Your expenses must be of the type for which a deduction would be allowed had you paid them yourself. The reasonable expenses of moving your possessions from your former home to your new home, and traveling from your former home to your new home are two examples.
2. You must adequately account to your employer for these expenses within a reasonable period of time.
3. You must return any excess reimbursement or allowance within a reasonable period of time.

Taxmap/pubs/p521-003.htm#TXMP6730a337 Adequate accounting.

You adequately account for your moving expenses by giving your employer documentary evidence of those expenses, along with a statement of expense, an account book, a diary, or a similar record in which you entered each expense at or near the time you had it. Documentary evidence includes receipts, canceled checks, and bills.

Taxmap/pubs/p521-003.htm#TXMP0819b596 Reasonable period of time.

What constitutes a "reasonable period of time" depends on the facts and circumstances of your situation. However, regardless of those facts and circumstances, actions that take place within the time specified in the following list will be treated as taking place within a reasonable period of time.

1. You receive an advance within 30 days of the time you have an expense.
2. You adequately account for your expenses within 60 days after they were paid or incurred.
3. You return any excess reimbursement within 120 days after the expense was paid or incurred.
4. You are given a periodic statement (at least quarterly) that asks you to either return or adequately account for outstanding advances and you comply within 120 days of the statement.

Taxmap/pubs/p521-003.htm#TXMP654f88b6 Excess reimbursement.

This includes any amount you are paid (including advances and allowances) that is more than the moving expenses that you adequately accounted for to your employer within a reasonable period of time. See Returning excess reimbursements, next, for information on how to handle these excess amounts.

Taxmap/pubs/p521-003.htm#TXMP1cc87f65 Returning excess reimbursements.

You must be required to return any excess reimbursement for your moving expenses to the person paying the reimbursement. Excess reimbursement includes any amount for which you did not adequately account within a reasonable period of time. For example, if you received an advance and you did not spend all the money on deductible moving expenses, or you do not have proof of all your expenses, you have an excess reimbursement.

Taxmap/pubs/p521-003.htm#TXMP42c6350e You meet accountable plan rules.

If for all reimbursements you meet the three rules for an accountable plan, your employer should not include any reimbursements of expenses in your income in box 1 of your Form W-2. Instead, your employer should include the reimbursements in box 12 of your Form W-2.

Taxmap/pubs/p521-003.htm#TXMP703e893f
Example.

You lived in Boston and accepted a job in Atlanta. Under an accountable plan, your employer reimbursed you for your actual traveling expenses from Boston to Atlanta and the cost of moving your furniture to Atlanta.

Your employer will include the reimbursement in box 12 of your Form W-2. If your moving expenses are more than your reimbursement, you may be able to deduct your additional expenses (see How and When To Report, later).

Taxmap/pubs/p521-003.htm#TXMP6a8ae9c9 You do not meet accountable plan rules.

You may be reimbursed by your employer, but you may not meet all three rules for part of your expenses.

If your deductible expenses are reimbursed under an otherwise accountable plan but you do not return, within a reasonable period, any reimbursement of expenses for which you did not adequately account, then only the amount for which you did adequately account is considered as paid under an accountable plan. The remaining expenses are treated as having been reimbursed under a nonaccountable plan (discussed below).

Taxmap/pubs/p521-003.htm#TXMP23061b82 Reimbursement of nondeductible expenses.

You may be reimbursed by your employer for moving expenses, some of which are deductible expenses and some of which are not deductible. The reimbursements received for the nondeductible expenses are treated as paid under a nonaccountable plan.

Taxmap/pubs/p521-003.htm#TXMP21398a86 Nonaccountable Plans

A nonaccountable plan is a reimbursement arrangement that does not meet the three rules listed earlier under Accountable Plans.

In addition, the following payments will be treated as paid under a nonaccountable plan.

1. Excess reimbursements you fail to return to your employer.
2. Reimbursements of nondeductible expenses. See Reimbursement of nondeductible expenses, earlier.

If an arrangement pays for your moving expenses by reducing your wages, salary, or other pay, the amount of the reduction will be treated as a payment made under a nonaccountable plan. This is because you are entitled to receive the full amount of your pay regardless of whether you had any moving expenses.

If you are not sure if the moving expense reimbursement arrangement is an accountable or nonaccountable plan, ask your employer.

Your employer will add the amount of any reimbursement paid to you under a nonaccountable plan to your wages, salary, or other pay. Your employer will report the total in box 1 of your Form W-2.

Taxmap/pubs/p521-003.htm#TXMP0c69f086
Example.

To get you to work in another city, your new employer reimburses you under an accountable plan for the $7,500 loss on the sale of your home. Because this is a reimbursement of a nondeductible expense, it is treated as paid under a nonaccountable plan and must be included as pay in box 1 of your Form W-2.

Taxmap/pubs/p521-003.htm#TXMP0699f5cd Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970

Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970

Do not include in income any moving expense payment you received under the Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970. These payments are made to persons displaced from their homes, businesses, or farms by federal projects.

Taxmap/pubs/p521-003.htm#TXMP0cfb75db Tax Withholding and Estimated Tax

Tax Withholding and Estimated Tax

Your employer must withhold income tax, social security tax, and Medicare tax from reimbursements and allowances paid to you that are included in your income. See Reimbursements included in income, later.

Taxmap/pubs/p521-003.htm#TXMP0bcc6eba Reimbursements excluded from income.

Your employer should not include in your wages reimbursements paid under an accountable plan (explained earlier) for moving expenses that you:

1. Could deduct if you had paid or incurred them, and
2. Did not deduct in an earlier year.

These reimbursements are fringe benefits excludable from your income as qualified moving expense reimbursements. Your employer should report these reimbursements in box 12 of Form W-2.

You cannot claim a moving expense deduction for expenses covered by reimbursements excluded from income (see Accountable Plans under Types of Reimbursement Plans, earlier).

Taxmap/pubs/p521-003.htm#TXMP2a8f7b6c Expenses deducted in earlier year.

If you receive reimbursement this year for moving expenses deducted in an earlier year, and the reimbursement is not included as wages in box 1 of your Form W-2, you must include the reimbursement on line 21 of your Form 1040. Your employer should show the amount of your reimbursement in box 12 of your Form W-2.

Taxmap/pubs/p521-003.htm#TXMP3bd8105a Reimbursements included in income.

Your employer must include in your income any reimbursements made (or treated as made) under a nonaccountable plan, even though they are for deductible moving expenses. See Nonaccountable Plans under Types of Reimbursement Plans, earlier. Your employer also must include in your gross income as wages any reimbursements of, or payments for, nondeductible moving expenses. This includes amounts your employer reimbursed you under an accountable plan (explained earlier) for meals, househunting trips, and real estate expenses. It also includes reimbursements that exceed your deductible expenses and that you do not return to your employer.

Taxmap/pubs/p521-003.htm#TXMP2f423b4a Reimbursement for deductible and nondeductible expenses.

If your employer reimburses you for both deductible and nondeductible moving expenses, your employer must determine the amount of the reimbursement that is not taxable and not subject to withholding. Your employer must treat any remaining amount as taxable wages and withhold income tax, social security tax, and Medicare tax.

Taxmap/pubs/p521-003.htm#TXMP6507ee08 Amount of income tax withheld.

If the reimbursements or allowances you receive are taxable, the amount of income tax your employer will withhold depends on several factors. It depends in part on whether or not income tax is withheld from your regular wages, on whether or not the reimbursements and allowances are added to your regular wages, and on any information you have given to your employer on Form W-4, Employee's Withholding Allowance Certificate.

Taxmap/pubs/p521-003.htm#TXMP4c884434 Estimated tax.

If you must make estimated tax payments, you need to take into account any taxable reimbursements and deductible moving expenses in figuring your estimated tax. For details about estimated tax, see Publication 505, Tax Withholding and Estimated Tax.

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