The TCJA change
What exactly did the Tax Cuts and Jobs Act change for relocation?
The TCJA made two related changes effective for tax years 2018 onward:
- Suspended the exclusion for qualified moving expense reimbursements (IRC Section 132(a)(6)). Before 2018, employer-paid qualified moving expenses (shipping household goods, travel to the new home) were excluded from the employee’s income. Now they are included in wages.
- Suspended the employee moving expense deduction (IRC Section 217). Before 2018, employees who moved for work could deduct unreimbursed moving expenses above the line. This deduction is now unavailable.
Both suspensions were originally enacted through 2025. Whether they have been extended, modified, or allowed to expire depends on subsequent legislation. Check the current status at IRS Tax Topic 455 for the applicable tax year before making relocation decisions.
How does relocation gross-up work?
Because relocation reimbursements are now taxable, many employers offer a tax gross-up — an additional payment to cover the taxes the employee owes on the relocation benefit. The goal is to make the employee “whole” so the move does not cost them money out of pocket.
The gross-up calculation is iterative because the gross-up itself is taxable. A simplified example:
| Item | Amount |
|---|---|
| Relocation benefit | $10,000 |
| Combined tax rate (fed 22% + FICA 7.65% + state ~5%) | ~34.65% |
| Gross-up amount (to cover taxes on benefit + gross-up) | ~$5,303 |
| Total taxable relocation on W-2 | $15,303 |
| Total taxes withheld | ~$5,303 |
| Net to employee | $10,000 (whole) |
Not all employers offer gross-ups. Without one, the employee absorbs 30–40% of the relocation benefit in taxes. Negotiate gross-up coverage during the job offer stage — it is much harder to add after accepting. Use the relocation bonus tax calculator and gross-up calculator to model the numbers.
What types of relocation costs are affected?
Under the TCJA, all employer-paid relocation costs are taxable for non-military employees, including:
- Household goods shipping and storage
- Travel to the new work location (airfare, mileage, lodging)
- Temporary housing at the new location
- Lease-breaking fees at the old location
- Home sale/purchase closing cost assistance
- Lump-sum relocation allowances
Whether the employer pays the vendor directly or reimburses the employee makes no difference — both are taxable wages included in W-2 Box 1.
State tax considerations for relocation
Most states follow the federal treatment and tax relocation reimbursements as income. However, a few states may have their own rules. Some states (like New York) continued to allow the moving expense deduction even after the federal suspension. Others follow the federal treatment exactly. Check with the revenue department in both your departure and destination states, as you may owe tax in both if you move mid-year.
The nine states with no income tax on wages (Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, Wyoming) do not impose state income tax on relocation reimbursements — a meaningful benefit for employees relocating to these states.
What should you negotiate in a relocation package?
Because relocation reimbursements are now taxable, the effective value of a relocation package is 30–40% less than the headline number. When negotiating a job offer that includes relocation, consider these strategies:
- Ask for a tax gross-up. This is the single most valuable item. Without it, a $20,000 relocation package nets you roughly $12,000–$14,000 after taxes. With a gross-up, you receive the full $20,000 after taxes.
- Get the gross-up in writing. Verbal promises of tax coverage often fall through. Include the gross-up commitment in your offer letter or relocation agreement.
- Understand the clawback clause. Many employers require repayment of relocation costs if you leave within 1–2 years. Clarify whether the clawback is on the gross (pre-tax) or net (post-tax) amount. A gross clawback can mean repaying more than you received after taxes.
- Consider a lump-sum vs. managed relocation. A lump sum gives you flexibility but the full amount is taxable. Managed relocation (where the employer pays vendors directly) is also taxable but reduces your out-of-pocket cash flow.
Use the relocation bonus tax calculator to model different scenarios before accepting an offer.
Questions
Employer-paid relocation tax FAQ
Are employer-paid moving expenses taxable?
Yes, for most employees. Since the Tax Cuts and Jobs Act of 2017 (effective 2018), employer-paid or reimbursed moving expenses are taxable income subject to federal income tax, Social Security, and Medicare. The only exception is for active-duty members of the U.S. Armed Forces who move pursuant to a military order. This TCJA provision was originally set to expire but verify the current status at irs.gov for the applicable tax year.
What changed with the TCJA regarding moving expenses?
Before 2018, employer-paid qualified moving expenses (household goods shipment, travel to the new home) were excluded from the employee's income and the employee could also deduct unreimbursed moving expenses. The TCJA suspended both the employer exclusion (IRC Section 132(a)(6)) and the employee deduction (IRC Section 217) for everyone except active-duty military. Employer-paid moving costs became taxable supplemental wages.
What is a relocation gross-up?
A gross-up is an additional payment from the employer to cover the taxes on a taxable relocation benefit. For example, if the employer pays $10,000 in moving expenses and the combined tax rate is about 35%, the employer adds roughly $5,400 in gross-up so the employee nets the full $10,000 after taxes. Not all employers offer gross-ups, and the gross-up itself is also taxable income.
Is relocation pay subject to FICA?
Yes. Taxable relocation payments are subject to Social Security tax (6.2% up to the $184,500 wage base in 2026) and Medicare tax (1.45%). This applies whether the employer pays the moving company directly or reimburses the employee. For the employer, this also means paying the employer share of FICA on the relocation amount.
Are active-duty military moving expenses still tax-free?
Yes. Active-duty members of the Armed Forces who move pursuant to a military order related to a permanent change of station retain the exclusion for qualified moving expense reimbursements and can still deduct unreimbursed moving expenses. This is the only exception to the TCJA suspension.
- Sources: IRS Tax Topic 455 · IRS Publication 521 (Moving Expenses) · TCJA P.L. 115-97 Sections 11048-11049 · IRS Publication 15 (2026).
- 🔄 Last updated July 31, 2026 · Tax year 2026
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