By 21st Theater Sustainment Command Legal OfficeNovember 20, 2018
EDITOR'S NOTE: There is additional guidance to this article. Please see the link "Additional guidance on taxable moving expenses for civilians" which is listed at the bottom of this page.
The Tax Cuts and Jobs Act, passed December 2017, eliminated a number of deductions that taxpayers have come to rely on. One of these was the moving expense deduction. The act eliminated the deduction for the tax year 2018 through the tax year 2025. However, the deduction will come back in 2026 unless Congress intervenes to eliminate it permanently.
This change does not apply to military personnel, but does apply to Department of Defense civilian employees and contractors.
In the past, if your move was motivated by a job change, you could deduct the expenses related to the move. Your new workplace must be at least 50 miles farther from your old home than your old job location was from your old home. This deduction was available even if you did not itemize your deductions, but it will be gone for 2018.
In addition, moving benefits paid in 2018 to DoD civilian employees and contractors will now be taxable to the employee, regardless of whether the employer reimbursed the employee for their out-of-pocket moving expenses or paid the moving company directly. DoD civilian employees and contractors must now include the cost of their PCS moving benefits in their income. This can be a substantial increase in taxable income. The average cost of a military move is estimated to be over $13,000.
The following reimbursements, whether by direct or indirect payment, are now taxable to the relocating U.S. Government civilian employee:
1. Lodging expenses for en-route travel to the new duty station
2. Mileage for using POV to travel to the new duty station
3. Transportation using common carriers (such as airlines) to the new duty station
4. Shipment of household goods (HHG), to include unaccompanied air baggage and professional books, paper, and equipmen
5. Temporary storage of HHG in transit, as long as the expenses are incurred within 30 calendar days after the day the items are removed from the old residence and before they are delivered to the new residence
6. Shipment of mobile home in lieu of HHG
7. Extended storage of HHG for OCONUS assignments
8. Shipment of POV, CONUS and OCONUS.
Temporary Quarters Subsistence Expense (TQSE) is an optional taxable allowance intended to reimburse employees for some costs of lodging, food, and other necessities when occupying temporary quarters at the old or new duty station for a CONUS to CONUS move. Temporary Quarters Subsistence Allowance is a non-taxable supplement for employees traveling to or from an overseas duty location on official travel orders and authorized Living Quarters Allowance. The taxability of TQSE is not changed by the Tax Cuts and Jobs Act of 2017.
Relocation expense and TQSE reimbursements are subject to 22 percent IRS income tax withholding by DFAS on behalf of the employee. The reimbursements are also subject to Federal Insurance Contributions Act withholdings of 6.2 percent for the employee and 6.2 percent for the employer for Social Security and 1.45 percent for the employee and 1.45 percent for the employer for Medicare. Income tax withholdings and FICA contributions made by DFAS on behalf of employees will be withheld from the employee's travel settlement payment amount (if possible) or billed to the employee as a debt.
For DoD civilian employees, some of this tax burden may be offset by the Relocation Income Tax Allowance (RITA). This entitlement reimburses DoD civilian employees for most federal, state and local income taxes incurred as a result of receiving taxable relocation benefits. Unfortunately, RITA itself is also considered to be taxable income and there is no additional benefit or offset to reimburse civilians for that tax burden.
RITA is not automatic. The employee must apply for RITA in the year after receiving taxable travel pay. Employees who receive a Withholding Tax Allowance entitlement (see below) with the travel settlement must submit a RITA claim by April 30 of the following calendar year. The method for calculating the RITA payment is based on the date the employee reports to the new duty location. For employees who reported to a new duty location on or after Jan. 1, 2015, the RITA calculation is based on taxable income from the Federal Income Tax Return (Form 1040) (after exemptions and deductions) and IRS published tax tables. RITA voucher submission requires DD Form 1351-2, DD Form 1614, Direct Deposit Form, all W-2s, RITA Status Certification Form, and the completed Federal income tax return. The amount of income reported on the Certification Form has to match the income tax documentation submitted with the RITA claim.
RITA payments are taxable pay in the year received. There is no relief for the tax consequence of a RITA payment. In addition, RITA is not available to new and retiring employees, although legislation to extend RITA to these employees is now pending. RITA information and forms can be found at the DFAS website.
The Withholding Tax Allowance (WTA) is an advance against RITA claimed by the employee on settlement voucher DD Form 1351-2 following the completion of travel. WTA is an election, and can be declined by the employee. WTA payments are taxable in the year received, and are deducted from the RITA settlement computed in the following year. WTA is calculated using the prescribed withholding tax rate of 22 percent. If WTA is elected by the employee, the employee must file a RITA claim within 120 days (April 30) of the following calendar year.
Failure to file a timely RITA claim will result in a DFAS debt and collection of the entire amount of WTA paid on the employee's behalf.
A WTA Selection Form is filed with the employee's travel settlement voucher, DD Form 1351-2. Employees should review marginal tax rates to determine whether a 22 percent WTA payment will exceed the final RITA payment (resulting in a debt to DFAS). Employees with a marginal tax rate below 22% may be subject to repayment of WTA amounts. Marginal tax rates can be found online at: https://www.bankrate.com/finance/taxes/tax-brackets.aspx. WTA information and forms can be found at the DFAS website: https://www.dfas.mil/civilianemployees/civrelo/withholdingtaxallowance.html
Employees can reduce the costs of a move by reducing the weight of or avoiding the HHG, unaccompanied baggage, or POV shipment. A do-it-yourself move may provide options to control or mitigate move expenses. The Tax Cuts and Jobs Act of 2017 concerns the taxability of reimbursements for previously deductible moving expenses, and does not appear to affect direct or indirect reimbursements for student travel, renewal agreement travel, or early return of dependent travel.