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Qualified Moving Expenses

We have an employee who received payment for Qualified Moving Expenses in 2008. We reported those payments on her 2008 W2 in box 12P. She is calling stating that two different tax preparers are telling her that the amount in box 12P has to be added into her earnings and therefore she has to pay taxes on it. I am confused. My understanding of box 12P is for reporting purposes, so that if the employee has qualified moving expenses that are higher than what we paid then they can take the difference as a deduction when they file thier taxes. Am I wrong? (Which is possible as I am not a tax preparer :D )

Comments

  • From the W-2 Instructions:
    Moving expenses. Report moving expenses as follows:
    * Qualified moving expenses that an employer paid to a third party on behalf of the employee (for example, to a moving company) and services that an employer furnished in kind to an employee are not reported on Form W-2.
    * Qualified moving expense reimbursements paid directly to an employee by an employer are reported only in box 12 of Form W-2 with code P.
    * Nonqualified moving expense reimbursements are reported in boxes 1, 3, and 5 of Form W-2. These amounts are subject to federal income tax withholding and social security and Medicare taxes (or railroad retirement taxes, if applicable).

    So the Box 12P amount should be the non-taxable amount. If the amount was taxable it should have been already added into Box 1,3,5.
  • That is what I thought but the Tax Preparer is telling the employee that since it is a benefit for the employee, it is taxable earnings. Everything that I have read online and on the IRS webiste says that it is nontaxable. I told the employee to call the IRS and ask them directly.
  • Suggest that the employee suggest to the preparer that since they are qualified moving expenses and since the preparer wants to include them on the tax return, the preparer should use Form 3903 - start with the expenses the employee paid on lines 1 and 2, and then enter the amount from box 12 (showing a code P) on line 4. Also suggest the employee refer the preparer to page 11 of IRS Publication 521.

    The employee should give a copy of the expense report turned in to you for reimbursement PLUS any other qualified expenses that the employee did not turn in to you or you did not reimburse. The preparer should EARN the preparation fee by digging for these amounts. If all the expenses you reimbursed qualified, then the amounts should zero out and nothing should be added to the employee's income (and Form 3903 should not be prepared and nothing should go on the employee's tax return for the moving expense). If the employee had more qualified exenses than you reimbursed, then the employee's taxable income will go down.

    It is possible that the employee misunderstood what the preparer meant - the preparer will generally include any amount shown in box 12, with the proper coding, in the tax preparation software, which is programmed to properly handle any amount with a code P based on what else is happening on Form 3903 (if there is nothing else on Form 3903, then nothing happens with the box 12, code P amount on the tax return). It is possible that the perparer does not know that if the preparer is relying on the tax prep software to prepare the return properly. Sadly, that happens all too often.

    If the preparer insists on including the box 12 amount "in income", the employee may want to consult with a QUALIFIED tax preparer such as an Enrolled Agent. However, the table from page 11 of Pub 521 is very clear on what to do with box 12 code P amounts. If the preparer was not going by that, I (and the employee should) wonder what else is wrong on the return.
  • Just an after thought - the preparer may be confusing the rules for dependent care expense reimbursement from a flex plan with the rules for moving expenses. Under the dependent care reimbursement rules, if the taxpayer does not provide all the necessary information on the child care providers and the amounts the were paid, the reimbursement is included in wages on the tax return. This is to prevent the taxpayer from getting an exclusion, deduction, or credit for amounts paid to child care providers who the taxpayer knows are not going to report the payments as income. The non-compliance issues on moving expense are a bit less complex - or at least not as large. Or perhaps it is because none of the problems encountered by nominees for Attorney General in the "NannyGate" "scandals" were related to moving expenses. :roll:
  • How does one confuse Dependent Care with Moving Expenses? :?:
  • Not confusing dependent care with moving expenses, but confusing the Form 1040 reporting rules for dependent care with the reporting rules for moving expenses. If you don't document the dependent care expenses on the child care form on Form 1040, the amount reported in box 10 (or the box 10 portion not covered by the documentation) gets added to wages on Form 1040 and is included in taxable income.

    While moving expense reimbursement is similar in nature (exempt from wages if qualified and employer paid), the employee does not have to document the expenses on Form 1040 to keep them from increasing wages.

    Two similar benefits (employer reimbursement of employee expenses reported on Form W-2) but two very different treatments on Form 1040.

    But as a preparer, I would not expect payroll people to understand as both look pretty much the same from a payroll viewpoint -- :twisted: :wink:
  • hey, Patrick??????

    :P :P :P
  • Hey Pattypa --

    three tongues?

    Musta missed the :twisted: with the :wink: --- :oops:
  • just found out we are only allowed three smilies per post -

    Anyway - communicating with smilies apparently can make one :? as to what one is saying by using the smilies -- :shock:
  • Sometimes, Patrick, there just aren't enough smilies in the world to adequately communicate the emotion. Like for this post. :D
  • When i moved with long distance movers chicago their expenses were same as estimated and their communication was really good throughout the move.

    David Warren
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