What distinguishes a moving allowance from a "relocation bonus"?

Question

When moving a certain distance for employment (say moving across the country for a new job), one can deduct some of the moving expenses to lower their AGI. This is done by filling out IRS Form 3903, the total of which will be deducted from your AGI when you fill out form 1040.

In the form, you list expenses related to transportation of household goods and personal effects, costs of travel, etc. Then, in line 4, it asks for how much money you received from your employer to cover those expenses:

Enter the total amount your employer paid you for the expenses listed on lines 1 and 2 that is not included in box 1 of your Form W-2 (wages). This amount should be shown in box 12 of your Form W-2 with code P.

My question is: what exact payments from your employer should be entered here? I realize that you can just write the number you get in box 12 with code P on your W-2, but I'm curious how they come up with this number.

For example, for my employer I received a signing bonus, and a "relocation lump sum" separate from that signing bonus. The relocation lump sum is taxed and will appear as income on my W-2, and I can spend it on anything I want. That said, should the relocation lump sum count towards the entry quoted above in Form 3903, or would it be considered the same as any other bonus; thus allowing me to take a full deduction for all of my deductible travel expenses?

Answer 1

For example, for my employer I received a signing bonus, and a "relocation lump sum" separate from that signing bonus. The relocation lump sum is taxed and will appear as income on my W-2, and I can spend it on anything I want. That said, should the relocation lump sum count towards the entry quoted above in Form 3903, or would it be considered the same as any other bonus; thus allowing me to take a full deduction for all of my deductible travel expenses?

The signing bonus and relocation lump sum will appear as regular income on your W-2. You can think of the relocation bonus as something to cover the pain and suffering the cost of moving, without needing to send in receipts.

Lets assume that you meet the distance and time tests, so there is potential to save money on your taxes. Lets also put your actual moving expenses as $2500.

If you have valid moving expenses the IRS will allow you to use them to reduce your AGI. So now you can reduce your AGI by the $2500.

Enter the total amount your employer paid you for the expenses listed on lines 1 and 2 that is not included in box 1 of your Form W-2 (wages). This amount should be shown in box 12 of your Form W-2 with code P.

My question is: what exact payments from your employer should be entered here? I realize that you can just write the number you get in box 12 with code P on your W-2, but I'm curious how they come up with this number.

In some cases the company will reimburse you your moving expenses up to a maximum of $x. For example a maximum of $1000 That means you submit receipts for those expenses and they give you a check or add it to your next paycheck. The check will either be for the amount on your receipts or the maximum amount, whichever is smaller.

In this situation with actual expenses of $2500 and a reimbursement of $1000 you can reduce your AGI by $1500.

Answer 2

It will count as income, and you can deduct as much of your moving expenses as allowed by tax laws.

If you also count it as a reimbursement, then you're double-taxed - once for the income and again by reducing your moving deduction.

The "reimbursement" amount is designed for when you get literally reimbursed for exact expenses directly, bypassing the tax on that compensation.

The only difference will be that you (and your employer) pay FICA and medicare on the "relocation bonus" that you wouldn't if you were reimbursed.

Also, with a reimbursement you are not incentivized to minimize the cost of your relocation (since it's not your money you're spending). With a bonus, since you get to keep whatever is left over, you have a vested interest in keeping your expenses down.