Adjust how your payroll department accounts for moving expenses under the new tax law

February 27, 2018|Amy Bradley

Review how changes to job-related moving expenses may impact your payroll.

On December 22, 2017, President Trump signed the Tax Cuts and Jobs Act into law. By now, you and your employees have seen your take-home pay go up as a result of the lower tax rates. Fortunately, the Internal Revenue Service (IRS) was able to make the recent tax changes work with your employees’ current Form W-4 elections. Therefore, no new Form W-4 was needed.

In addition, tax reform impacted the supplemental withholding income tax rates, decreasing to 22% for the first million dollars of supplemental wages and 37% after a million dollars.

Moving expenses no longer tax free

Another significant change as part of the tax reform relates to moving expenses. Specifically, the exclusion from income of employer-provided, job-related moving expenses was suspended for taxable years 2018 to 2025, except for military-related moving expenses.

Previously, the cost of moving the employee, their family and belongings was excluded from the employee’s income. Starting in 2018, the moving costs will be taxable income to the employee for federal income tax, Social Security and Medicare taxes, and federal unemployment. 

Some states will need to catch up with the tax reform changes. Wisconsin is one of these states. Wisconsin follows the Internal Revenue Code as amended through December 31, 2016. State changes can come at any time throughout the year and have a retroactive date of January 1, 2018.

What does your payroll department need to do?

Moving expenses need to be added to payroll as the expenses are being reimbursed or paid. With the possible changes to the state treatment, this could cause issues if the employer is grossing up for moving expenses.

We are waiting on guidance from the IRS regarding 2017 moves with 2018 reimbursements to see if they will be taxable to the employee or not.

For more information, please contact your Schenck representative.

Amy Bradley, CPP, operations lead – payroll, is responsible for firm-wide research on payroll-related issues. Amy has 30 years of payroll experience, including work with multi-state and multi-employer payrolls.

Tags: Payroll, Tax