Accountable Plan for Moving Expenses
An accountable plan is an allowance or reimbursement policy (not necessarily a written plan) under which amounts are nontaxable to the recipient if requirements are not met. Per the Internal Revenue Service (IRS), to be an accountable plan, your employer’s reimbursement or allowance arrangement must include all of the following rules.
- Your expenses must have a business connection — that is, you must have paid or incurred deductible expenses while performing services as an employee of your employer
- You must adequately account to your employer for these expenses within a reasonable period of time
- You must return any excess reimbursement or allowance within a reasonable period of time
Employee meets accountable plan rules
Per the IRS, if you meet the three rules for accountable plans, your employer should not include any reimbursements in your income in box 1 of your Form W-2. If your expenses equal your reimbursements, you do not complete Form 2106. You have no deduction since your expenses and reimbursements are equal.
- Traveling expenses end as soon as you arrive at your new destination. They do not include a hotel when you arrive. These can be paid for but are taxable to the individual.
- Prairie View A&M University’s travel reimbursement time period is 90 days according to the IRS Safe Harbor Rule.
- The employee must incur the cost, but if it is an excludable item it can be paid direct.
A moving expense reimbursement received directly or indirectly from an employer (under an accountable plan) is excludable to the employee if the following tests of IRC §217 are met.
IRC §82 & §217
- Individual must be an employee.
- Employee must actually incur or pay the expenses
- Expenses are closely related to starting work at the new job location (generally moving expenses incurred within one year from the date the employee first report to work at the new location qualify)
- Expenses must meet the time and distance tests:
The employee must work at least 39 weeks full-time in the first year after arriving in the new location.
The new job is at least 50 miles farther from the former home than the old job location was from the former home.
Employee must meet all three of the following rules.
- Your expenses must have a business connection-that is, you must have paid or incurred deductible expenses while performing services as an employee of the University. Two examples are 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.
- You must adequately account to your employer for these expenses within a reasonable period of time which is within 60 days.
- You must return any excess reimbursement of allowance within a reasonable period of time which is 120 days.
- Travel expenses
- This expense includes the cost of transportation and lodging for yourself and members of your household while traveling from your former home to your new home. You can also include any lodging expenses you had in the area of your former home within one day after you could not live in your former home because your furniture had been moved. Only expenses for one trip to your new home for yourself and members of your household will be deductible.
- Moving of household goods and personal effects
- The cost of packing, crating and transporting your house hold goods and personal effects from your former home to your new home.
- The cost of storing and insuring house hold goods and personal effects within any period of 30 consecutive days after the day your items are moved from your former home and before they are delivered to your new home.
- Any costs connecting or disconnecting utilities required because you are moving household goods and personal effects.
- Costs of shipping your automobile or household pets to a new home.
- The cost of moving household goods and personal effects from a place other than your former home. However, the deduction is limited to the amount it would have cost to move them from your former home.
Non-Qualified Moving Expenses
- Any part of the purchase price of your new home
- Vehicle registration
- Driver’s license
- Expenses of buying or selling a new home
- Expenses of entering into or terminating a lease
- Home improvements to help sell your home
- Loss on the sale of your home
- Losses from cancelling memberships in clubs
- Meal expenses
- Mortgage penalties
- Pre-move house hunting expenses
- Real estate taxes
- Refitting of carpets and draperies
- Security deposits
- Storage charges except those incurred in-transit
- Temporary living expenses
IRS Publication 463-Travel, Entertainment, Gift and Car Expenses defines employee reimbursements, accountable plans, per diems, etc.
IRS Publication 535-Business Expenses define travel, meal and entertainment expenses and define why they are deductible or not deductible.
IRS Publication 15-B Employer’s Tax Guide to Fringe Benefits contains information for employers on the employment tax treatment of fringe benefits.
For additional information concerning the Internal Revenue guidelines you may review IRS Publication, 521-Moving Expenses, deductible and non-deductible, accountable plans
on-line at: http://www.irs.gov/pub/irs-pdf/p521.pdf