IRS Clarifies Status of 2018 Reimbursements for 2017 Moves

As part of the Tax Cuts and Jobs Act (which became effective on January 1, 2018 and runs through December 31, 2025), the costs associated with household goods moves and final travel to the new location were no longer excludable/deductible from employee income. After the new rules took effect, there remained a question regarding how to treat payments made in 2018 for costs incurred in 2017.

Due to the lack of clarity on this issue, employers and relocation management companies had to determine how to report payments made in 2018 for 2017 expenses. NuCompass recommended a conservative approach for reporting these expenses as taxable until the required guidance was received from the IRS.   
 
IRS Update
According to a notice issued on September 21, 2018 (Notice 2018-75, 2018-41 IRB 1), the IRS has clarified that reimbursements or employer payments made in 2018 for moves occurring in 2017 remain excludable from employee income. 
 
This notice resolves a transition issue that left the question open regarding how to handle these types of payments.  According to Pete Scott, Worldwide ERC tax counsel, the new Notice clarifies that if an employer pays a third party in 2018 for moving services provided to an individual prior to January 1, 2018, or reimburses an individual in 2018 for qualified moving expenses incurred for a move prior to January  1, 2018, those payments and reimbursements are not includable in the employee’s income.    
 
Further, the Notice says that employers who have included such amounts in the wages of employees for purposes of employment taxes may either use the adjustment process under section 6413 or the refund claim process under section 6402 to correct the over payment of federal employment taxes.
 
Next Steps
With the current IRS Notice, definitive action can now be taken on the issue and adjusted reporting can be made to the IRS for related payments. Your payroll department may need to reverse entries or take other actions, as needed. This effort may require collaboration or specific support from your payroll department and your relocation management company.