Relocation drives growth for companies by enabling them to strategically deploy talent and it helps employees to access new opportunities. But navigating the complexities of relocation benefit taxes can be difficult for both employers and employees. As key provisions of the Tax Cuts and Jobs Act (TCJA) expire in 2025, it’s time to plan for these changes and optimize your relocation policies for the future.

Moving Expense Deduction and Moving Reimbursement Exclusion

From 2018 through 2025, the TCJA suspended the moving expense deduction for most taxpayers, excluding members of the Armed Forces moving under military orders. Once the TCJA expires, this deduction will once again become available to all taxpayers who meet the necessary requirements. To deduct unreimbursed moving expenses, taxpayers must pass the employment test (starting a new job at least 50 miles from their home) and the time test (working full-time for at least 39 weeks in their first year on the job).

In addition, the moving reimbursement exclusion currently only applies to active-duty Armed Forces members as well. With the expiration of the TCJA, this exclusion will be restored for all employees. Moving forward, reimbursement by employers for qualified moving expenses will not be treated as taxable income, further reducing the tax burden for relocating employees.

Together the restoration of both the moving expense deduction and moving reimbursement exclusion will offer relief to employees. But employers should re-evaluate their relocation policies to ensure compliance and effective management of these benefits.

Preparing for Relocation Tax Challenges

Mobility leaders should prepare for these adjustments to relocation taxation using the following strategies:

1. Stay Ahead of Tax Law Changes: Make sure you understand how the restorations of the moving expense deduction and moving reimbursement exclusion will impact your program and policies. Work with relocation and tax professionals to answer any questions that arise.
2. Thoughtfully Adjust Tax Gross-Ups: Explore tailored gross-up strategies, like simple or tiered gross-ups, to align with your company’s philosophy and program budget and account for the additional relief TCJA’s expiration provides.
3. Collaborate and Communicate: Partner with a relocation management company like CapRelo to review your program and policies and help you communicate changes to your relocating employees. Clear communication about tax implications fosters trust and reduces confusion for transferees and assignees.

The expiration of the TCJA provides an opportunity to reassess and refine your approach. Start preparing your relocation program today with expert guidance from CapRelo. Our tailored solutions help mobility leaders design programs that comply with evolving tax laws while prioritizing employee satisfaction.