Before you record moving expenses, first determine what part of the disbursed moving expense is qualified (exempt from taxation), and what part is non-qualified (taxable to the employee). For help making this determination, see IRS Publication 521.

Nonqualified Moving Expenses

Whether paid to the employee or paid to a third party, nonqualified moving expenses, are considered taxable wages on the W-2 statement in boxes 1, 3, and 5. That is, these amounts are subject to federal income tax withholding and Social Security and Medicare taxes.

Contact your CPA, tax attorney, or other tax advisor to determine the appropriate tax and reporting requirements.

Qualified Moving Expenses

Qualified (excludable) moving expenses are reported on W-2 statements in box 12 with code P. These amounts are employer reimbursements paid directly to the employee and aren't taxable to the employee.

Don't report qualified moving expenses an employer either pays to a third party on behalf of the employee (to a moving company, for example), or qualified services the employer furnished in kind to an employee.

Many states, like California, haven't adopted the federal rules for moving expenses. Have your CPA, tax attorney, or other tax advisor contact the applicable state agency for the proper handling of moving expenses.

Entering Excludable Moving Expense

• To reimburse an employee for moving expenses that the employee already paid, enter a deduction description (EMOVE, for example), with a negative amount and a status code of 00T.
• If Accounts Payable issued the reimbursement, enter the amount as a memo deduction. For example, use the EMOVE description, with a positive amount and a status code of 0MT.
• Make these entries during a payroll cycle in which the employee receives a check.

The EMOVE description used in this example must be established in the Deduction table on your Ceridian payroll product and in the Ceridian Payroll System (Signature) with option 32: RPT ON W-2 AS EXCLDBL MOVG EXP. This option displays the amount on the W-2 statement in box 12 with code P.

Entering Nonqualified Moving Expense

To enter moving expenses that are taxable to the employee, use a different deduction description (TXREL, for example), with a positive amount and a status code of 02T.

• A different S2 code might be required depending on the various state requirements. Have your CPA, tax attorney, or other tax advisor contact the applicable state agency for the proper handling of moving expenses.
• Make this entry during a regular payroll cycle in which the employee receives a check. The employee must have enough current earnings to satisfy the cost for the additional taxes calculated on the taxable relocation.
• The TXREL deduction used in this example must be established in the Deduction table on your Ceridian payroll product and in the Ceridian Payroll System (Signature).

Form 940 Instructions

Qualified moving expense reimbursements and payments aren't reported on Form 941, Employer Quarterly Federal Tax Return. However, these payments, even if paid to a third party, must be reported on Form 940, Employer Annual Federal Unemployment (FUTA) Tax Return, in Part 1 on Line 1 and Line 2.

The Ceridian Payroll System (Signature) doesn't automatically update FUTA wages when moving expense reimbursement adjustments are recorded. Use a deduction description (FUADJ, for example), using status code 0CT to update FUTA wages.

Moving Expense Reimbursement Examples

Assume that deduction description EMOVE (excludable moving reimbursement - qualified expense) and TXREL (taxable moving reimbursement - nonqualified expense) are defined for this company. Assume further that an employee received an $8,000 moving expense reimbursement. You determine that $6,000 must be excluded from the employee's income and $2,000 is taxable income.

TXREL isn't defined as a fringe deduction for this company.

Example 1: Cycle Data (HED) Entries to Record Amounts Paid to the Employee

This example records a moving expense that Accounts Payable has already issued a check for the full $8,000. No taxes were withheld. You must make this entry during a regular payroll cycle that the employee receives a check; to cover the taxes for the TXREL entry.

Deduction	Amount	Status
EMOVE	6000.00	0MT
TXREL	2000.00	02T

• The EMOVE entry displays in box 12 with code P (excludable moving expense). This is a memo deduction and doesn't affect the employee's net pay.
• TXREL adds $2,000 to the employee's gross wages and is completely taxable. The employee must have enough current earnings to satisfy the cost for the additional taxes calculated on the TXREL (taxable moving reimbursement) deduction. The taxes on $2,000 is then deducted. S2 code 2 for TXREL increases the employees after-tax deductions by $2,000, thus offsetting the wage amount to zero. On the Pay Analysis Report (payroll register), $2,000 displays under Earnings as well as Tot Ded (total deductions).

Example 2: Manual Check Entry for Amounts Paid to the Employee

This example shows a manual check entry used to record an Accounts Payable reimbursement for a non-active or non-paid employee. The employee has reimbursed the company for the FICA tax, but is responsible for federal and state withholdings when filing his or her W-2 statement.

Manual Check - Suppress FICA Calculation Y

• The EMOVE entry displays in box 12 with code P (excludable moving expense). This is a memo deduction and doesn't affect the employee's net pay.
• TXREL adds $2,000 to the employee's gross wages and is completely taxable. The Social Security and Medicare tax entries record the FICA tax that the employee paid. No federal or state taxes are recorded because the employee is responsible for these taxes when filing his or her W-2.
• ADJ is an optional entry that offsets the FICA tax that the employee paid, which results in a zero amount for net pay.
  S2 code 2 increases the employees after-tax deductions by $2,000, thus offsetting the wage amount to zero. On the Pay Analysis Report (payroll register), $2,000 displays under Earnings as well as Tot Ded (total deductions).

Example 3: Payroll Reimburses the Employee 

This example shows a moving expense reimbursement that payroll issues. You have the option to submit these entries on an additional check or an Xpresscheck if a seperate check is required.

Deduction	Amount	Status
EMOVE	6000.00-	00T
TXREL	2000.00	01T

• The EMOVE entry displays in box 12 with code P (excludable moving expense). The negative entry with status 00T adds $6,000 to the employee's net pay.
• TXREL adds $2,000 to the employee's gross wages and is completely taxed. The remainder is paid to the employee.