What Is Moving Expenses Deduction and How to Tell If You’re Eligible for It?

You know that moving expenses deduction is possible, but you’re not sure when and are you eligible for it? We have the answers. Right now, only active members of the US Armed Forces and their families can get this write-off under certain conditions. One of them is when they’re hiring long distance movers and moving across the country because of a military order. How did it come to that, and what conditions do you need to meet if you’re in the Armed Forces? Let’s find out.

September 22, 2020 Amber Hughes

You know that moving expenses deduction is possible, but you’re not sure when and are you eligible for it? We have the answers. Right now, only active members of the US Armed Forces and their families can get this write-off under certain conditions. One of them is when they’re hiring long distance movers and moving across the country because of a military order. How did it come to that, and what conditions do you need to meet if you’re in the Armed Forces? Let’s find out.

Most people hate doing their taxes as it is quite a boring and complicated task. Almost as much as moving and packing. However, it must be done, so it’s better to take some time to understand it than to pay for something you don’t have to. If you’ve finalized your moving across the country checklist and now you want to know “can I deduct moving expenses on my taxes,” we have some interesting news.

What Are Tax Deductions?

Tax deductions or write-offs are a reduction of the amount of your income that is taxable by the government. They are usually a result of costs incurred to produce additional income. The most common examples of costs that qualify for this category are medical costs, home mortgage interest, or charitable contributions.

A woman holding a green notebook calculating costs
This is a boring topic to many, but it's an important one

Are Moving Expenses Tax-Deductible?

The answer is – of course, but the terms have changed. That’s because of the Tax Cuts and Jobs Act of 2017, which did bring some good things such as benefits to self-employed people, but it also brought some bad ones. One of the relocation questions to ask the employer was will the company pay for your move if you have to change the state because of your new employment. Right now, companies avoid doing that because of the Act brought in 2017. It changed the fact that work-related moving state to state and car shipping costs are deductible – they are suspended for five years – from 2018 to 2023. However, people who moved before 2018 because of employment at a new business were able to deduct their relocation costs if they passed the tests for time and distance.

How Does the Test for Tax Deduction Look Like?

Simply put, you had to answer questions such as the following:

  • Did your relocation costs happen within twelve months from the date when you first reported to work at the new workplace?
  • Is the distance from your current home to your job more than the distance between your previous home and job?
  • Was the relocation a condition for your current job?
  • Is the distance between your current job and previous place of residence at least fifty miles farther than the distance between your old home and job?
  • Did you work as a full-time employee for at least 39 weeks during the first year of your arrival at your new location?

After answering all the questions, the Interactive Tax Assistant (ITA) will do the calculation and tell you whether you can expect moving expenses tax deduction. Since that train has passed, the only people who can count on maximizing this cost are active men and women of the Armed Forces.

Since 2018, Only the Active Members of the Military Can Get Moving Expenses Deduction

And it’s not in all cases. Since the situation is a bit complicated, we’ll try to break it down to understandable pieces. According to the Internal Revenue Service or IRS, the only ones who can ask for the adjustment of the income or the moving expenses deduction are those who have military relocation costs incurred as a result of a permanent change of station. The distance test doesn’t apply here, nor the time test. You can relocate to another base with your spouse or/and your dependents, and those costs will be combined and treated as a single move.

Bring Out the Calculator and Add up All the Expenses You Paid for Yourself

If you met the conditions listed above, there’s more. Here’s a list of Yes or No questions waiting for you at the IRS website if you wish to know can I deduct moving expenses:

  • Did you pay for the packing, packing materials, crating, and transportation of your household goods and other personal belongings?
  • Did you pay the expense of connecting or disconnecting utilities?
  • Did you pay the price of auto transport and/or for moving your pets?
  • Did you pay the expense of relocating your household goods such as furniture and personal effects from a place other than your former place of residence?
  • Did you pay storage costs?
  • Did you pay lodging costs to your new home?
  • Did you pay transportation (other than a car) costs?
  • Did you stop over or make side trips for sightseeing during your trip to your new home?

If you did pay for all of these things, you have a good chance of tax deduction moving expenses. If you didn’t pay for them but did some of these tasks by yourself because you wanted to have the cheapest way to move out of state, you might be in the group of those who can’t get the write-off.

Another important thing is to know that side trips and sightseeing during cross country moving, as well as the lodging, must be reasonable.

To define it, the IRS explained that the route you took from your old residence to the new one must be the shortest, and the most direct one available. Additional costs for stopovers, side trips, or pre-move house-hunting costs are not deductible as relocation costs. Also, keep in mind that lodging costs exclude the meals you will have during the move.

Calculator with a yellow pen
In case you paid for all or most of the relocation costs, ask for a write-off

Can I Deduct Moving Expenses If My Employer Reimburses Me?

The employer, in this case, the US Army, often provides an incentive payment equal to 95% of the government’s estimated cost for a Personally Procured Move (PPM) or Do it Yourself Move. When the move is completed, the service member provides receipts to show authorized costs.

If your relocation expense is greater than the reimbursement, the costs you can deduct are those that you paid for yourself. The reimbursements will be reported on something called Form W-2. That is a form that every employer must file for each employee for services performed by an employee, and it allows Social Security or Medicare tax to be withheld, while the Income-tax can be withheld under certain conditions.

Hands holding a piece of paper
Prepare for plenty of paperwork

When Should You Ask for the Write-Off?

Here comes more paperwork and forms – in case that your deductible relocation expense is greater than the amount of total reimbursements and allowances you received from the government for the cost you claimed, file Form 3903. This one is used to figure your relocation expense write-off for a move based on when you started working at a new workplace. If that workplace is outside the United States or its overseas territories, you must be a US citizen or resident to deduct your costs.

In case your relocation costs are equal to the reimbursement amount, then the answer to “can I claim moving expenses on my taxes” is no, your costs are not deductible.

And of course, if your Form W-2 shows that your relocation costs are less than the reimbursement amount, the costs are not deductible

When completing Form 3903, see the instructions for the Armed Forces.

The members of the Armed Forces most commonly use the cash method of accounting and have qualified costs exceeding their reimbursement. Those costs can be deducted either in the year you paid them when reimbursement was received or right after the year of reimbursement but by the due date. If costs are deducted and reimbursement is received in a later year, the reimbursement must be included in salary.

A woman writing in a notebook next to her phone and a cup of coffee
Calculate to see if you're eligible for the write-off

Learning About Taxes Should Become One of Your Money Habits If You Wish to Do Them Free of Stress

If you had an accountant doing your taxes or your family ones, and you’ve decided that you want to do them all by yourself, keep in mind that it does seem scary, but in the end, it really isn’t. Firstly, you should learn the basics like the fact that you need to fill out both state and the federal tax return, and that the deadline for paying them is April 15th. Paying taxes is just filling out a bit complicated forms and mailing them to the IRS, and every person who is or was employed during any time of the year should file them. You can do them manually or through tax-preparation software to help you out. The manual method isn’t really simple, and we don’t recommend it if this is your first time. Remember that software often comes with a fee, but you can use them for free if your adjusted gross income is less than a certain amount.

A person typing on a laptop
Use all the help you can find online to make this process as easy as possible

Use the Help of Online Calculators and Softwares

The Internal Revenue Service provides a list of free software you can use, such as Turbotax or FreeTaxUSA, but keep an eye on the requirements you need to meet, such as the adjusted gross income range. You will want a software that can do both state and federal tax for you. You will also want to keep track of the money you earned and learn what deductions you can take. Your employer will send you Form W-2 we mentioned, which lists all the money you made during that year and all the taxes that had been withheld already. Once you list them and file them to the Internal Revenue Service, make sure you keep a copy in any form, just in case. You never know when will you need to reference your old tax returns, so be smart and do it anyway. Whether you’re a member of the US Armed Forces moving cross country to another location or a regular citizen doing your duty, paying taxes is an important responsibility.