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In today’s competitive job market, attracting top-quality job candidates can be challenging for business owners. Offering an attractive fringe benefits package is a crucial strategy for gaining an edge over competitors. One effective method is to offer moving expense reimbursements to new hires. While the tax landscape for such reimbursements has changed under recent legislation, it remains a viable strategy for businesses looking to optimize their tax efficiency.
Navigating the Current Tax Landscape
Before the Tax Cuts and Jobs Act (TCJA) of 2017, employees could deduct job-related moving expenses if they met specific distance and time tests. However, the TCJA suspended this deduction from 2018 through 2025 for most employees, excluding qualified military personnel. This change impacts the tax treatment of moving expenses, but employers can still leverage reimbursements to attract talent.
Accountable Plans: A Smart Move for Employers
Employers can provide moving expense reimbursements as a fringe benefit through an “accountable plan.” This plan requires employees to document their moving expenses and return any excess reimbursement to the employer. Under an accountable plan, these reimbursements are not subject to federal income taxes or payroll taxes for the employer, making them an appealing option despite being taxable for employees. Employers can deduct these payments as “ordinary and necessary” business expenses or as an excludable fringe benefit under the Internal Revenue Code.
Conversely, reimbursements made under a nonaccountable plan, or excess reimbursements not returned by the employee, are treated as taxable compensation. Such payments must be reported on the employee’s W-2 form and are subject to federal income taxes and payroll taxes. This treatment can increase the employee’s tax burden, but it does not affect the employer’s ability to deduct these expenses.
Maximizing Tax Efficiency: Deductibility for Employers
Although the TCJA suspended the tax exclusion for employer reimbursements to employees under an accountable plan, it does not impact the employer’s ability to deduct these expenses. Employers can still fully deduct moving expense reimbursements under an accountable plan, preserving a valuable tax benefit. By offering this fringe benefit, employers can continue to attract top job candidates, even though these payments are now taxable to employees.
Looking Ahead: Potential Legislative Changes
While the current tax treatment for moving expense reimbursements under the TCJA remains in effect through 2025, there is ongoing discussion in Congress about modifying these rules. Business owners should stay informed about potential changes to ensure they can adjust their strategies accordingly.
Conclusion
In summary, offering moving expense reimbursements to new hires is a powerful tool for business owners looking to attract and retain top talent. By understanding the current tax regulations and utilizing accountable plans, businesses can optimize their tax efficiency while offering competitive fringe benefits. Keeping an eye on legislative developments will also help employers adapt and continue to leverage these benefits effectively.
