Payroll Tax Guideline 103: Employee Moving Expenses

Reviewed 10/1/2014


This guideline addresses the tax reporting requirements applicable to employee moving expenses paid by the University.

Moving Expense Payments

The Campus Controller is responsible to ensure that all moving expenses paid by the University are either paid through the Human Resources system or are promptly reported to the Campus Payroll Office. A “Moving Expense Tax Form” must be prepared whenever the University reimburses an employee or pays a third party on the employee’s behalf. To be acceptable a form must include the 50-mile test (see below) and group moving expenses into the categories referred to below. (See “Moving Expense Tax Form“). The Campus Payroll Office is responsible for payroll tax reporting and withholding on moving expense payments.

Tax Reporting and Withholding

Moving expense payments made by the University must be separated into the accurate category to ensure proper tax reporting and withholding. The categories as outlined below are Nonqualified Expenses, Qualified Expenses paid to Employees or Qualified Expenses paid to Third Parties.

1. Nonqualified Moving Expenses: Nonqualified moving expenses are payments by the University for temporary living costs, house hunting, the costs of selling an old residence or buying a new one, the costs of meals consumed while traveling, the costs of breaking an old lease, etc. Whether the employee is reimbursed or the payment goes directly to a third party, these payments must be reported as federal wages in Box 1 of Form W-2 and are subject to income tax withholding and Medicare taxes.

2. Qualified Moving Expenses: Qualified moving expenses are the costs of transporting an employee who meets three requirements (outlined below) his family, and his household goods and personal effects from his old residence to his new residence.

A. Qualified Moving Expenses Paid to Employees: These payments are not taxable income to the employee, are not included in Box 1 of Form W-2, and are not subject to income tax withholding or Medicare taxes. They are reported in Box 12 of Form W-2 and are identified with code P.

B. Qualified Moving Expenses Paid to Third Parties: Qualified moving expenses paid directly to third parties (e.g., to a moving company) are not reported anywhere on the Form W-2.

Three Requirements an employee must meet for expenses to be considered Qualified Moving Expenses – Each of the following requirements must be satisfied before classifying an expense as “Qualified”.

1. The 50-Mile Test- No moving expenses can be excluded from the employee’s income unless the employee’s new work site is at least 50 miles farther from his former residence than his old work-site was from his old residence.

2. The Time Test – During the 12 months immediately following the employee’s arrival in the new location, the employee is employed full time for at least 39 weeks.

3. Move is closely related to the start of work – The employee’s move must be closely related, both in time (generally within 12 months to start date) and place (generally the distance from the employee’s new home to the new job location should not be greater than the distance from the employee’s former home to the new job location), to the start of work at the new job location.

Allowable Automobile Mileage Rate

The IRS provides a standard rate per mile for employees who use their automobiles in connection with a move that meets the 50-mile test. Each year’s standard rate can be found in IRS Publication 521, Moving Expenses.


A campus recruits and relocates an employee from New York City.

The campus agrees to pay the following expenses:

Payment Description

Amount Paid by UMass

Moving household goods


Moving family (airfare)


House-hunting expenses


Temporary living expenses


Meals in connection with travel and house hunting


Costs of breaking lease on old residence


Hiring bonus



Total Payments


Tax Result For federal and Massachusetts tax purposes, $7,000 ($13,000, total less a $5,000 exclusion for moving household goods and a $1,000 exclusion for family airfare) is taxable as wages to the new employee. The $6,000 exclusion is available if all three requirements for Qualified Moving Expense are met.