Because states must decide whether to let the Tax Cuts and Jobs Act (TCJA) changes flow through to their state income tax systems or break with the Federal tax code and establish their own rules, there is a lot of uncertainty in managing the taxability of moving expenses in certain states. These choices could have major effects on state tax revenue, state taxes paid by their residents, and companies that relocate employees.
As the effect of the TCJA making household goods and final move costs taxable under the IRS Federal Tax Code continues to unfold, individual states must determine how they will recognize the modifications to the taxing status of household goods and final move expenses.
- Most states will automatically follow Federal law,
- a small portion of states have confirmed they will continue to treat these expenses as excludable and nontaxable, and
- a handful of states have yet to determine how these moving expenses will be treated.
The provided map details the status of state responses to the TCJA as of September 10, 2018 per NEI's consultation with Pete Scott, Worldwide ERC Tax Counselor.
As NEI prepares for year-end, we will continue to monitor the final determinations on how states that remain undecided or out-of-sync with the Federal law will be proceeding.
Suggested Actions Now
In the meantime, NEI recommends a review of household goods/final move expenses incurred in nontaxable states or states with final decisions still pending, as some companies could possibly realize tax gross-up savings in these states. NEI is available to complete the analysis of the potential impact to our clients’ program costs. It will be important to confirm that payroll systems have the capability to load taxable and nontaxable expenses by the requirements of specific states.
Because states have made their determinations to confirm their alignment with the Federal tax code – or not – at varying times since January 2018, as a conservative approach, NEI is processing all household goods and final move expenses as taxable and grossed-up, if applicable, for all taxes according to our clients’ individual gross-up methodologies.
If after a review, any modifications are necessary to the taxability and gross-up of our clients’ programs, based on any state’s final decision, we would recommend completing this as a part of a year-end true-up. NEI is available to discuss and work with our clients’ payroll departments in ensuring these adjustments are posted prior to the close of the relocation year-end and communicated to impacted employees. NEI clients should contact their NEI Client Relations Manager if they would like to schedule a review of their mobility activity to see how state legislation from the various states might impact gross-up costs.
Tax Reform’s Impact on Mobility (NEI video)
In June, NEI hosted its annual client symposium and provided a comprehensive session on Tax Reform’s Impact on Mobility, presented by Worldwide ERC® Tax Counselor Pete Scott and NEI’s finance and accounting team. If you would like to view the recording, please click HERE.
PLEASE NOTE: For the eight states identified as "currently excludable, but decision pending", if no determination is made prior to year-end, moving expenses in those states will continue to be considered as excludable or deductible.
State tax information provided as of 9/10/2018. The data provided herein is for general information only and should not be construed as legal or tax advice. Please check with your legal and tax providers before making any decisions.
* Number of states addressed totals 51 due to the inclusion of the District of Columbia.