Prior to January 1, 2018 and the enactment of the Tax Cuts and Jobs Act (TCJA), Federal Tax Law allowed employees or self-employed individuals to deduct the expense of moving themselves and their families -- provided the move was directly related to employment.
Likewise, organizations with employer-sponsored relocation programs were not required to withhold taxes on certain moving expenses, including:
- Transportation of household goods and personal effects
- Travel (including lodging, but not meals) to the new residence
Where an automobile was used in making the move, taxes were not withheld on reimbursement of:
- The actual out-of-pocket expenses incurred (gas and oil, but not repairs or depreciation, etc.); or
- A standard mileage allowance as determined by the IRS
The enactment of the TCJA eliminated the deduction or exclusion of moving expenses from federal tax withholding and effectively made all relocation expenses taxable. However, several states did not automatically follow the federal tax regulations that became effective January 1, 2018 after the passage of the Tax Cut and Jobs Act (TCJA). Massachusetts was one of those states.
On January 25, 2023 Massachusetts published notice that the moving expense deduction allowed for by state tax statute for tax years 2021 and prior, would not be allowed for tax years 2022 and beyond.
Massachusetts has now aligned to the IRC regulations in effect as of January 1, 2022 and made this announcement retroactive to tax years on or after January 1, 2022. Therefore, beginning for the 2022 tax year, a state moving expense deduction is no longer allowed, and employer paid or reimbursed moving expenses must be treated as a taxable benefit, and included in 2022 Employee W-2 Wage and Tax Statements.
For organizations that processed and reported employee relocation expenses throughout the year following the tax law that was in place throughout 2022, payroll and finance teams should be prepared to properly handle revisions to tax filings as needed. In most cases, an amended W-2 or W-2c would be recommended for any employees that had moving expenses excluded from Massachusetts earnings.
