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June 6, 2019
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If my previous employer made me pay back moving expenses because I didn't work there long enough, is the amount I had to pay back tax deductible?

  • June 6, 2019
  • 2 replies
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Best answer by Hal_Al

It's complicated.

Yes, if you paid back income that was previously taxed.

No, if the moving expenses were tax free.

Most company paid moving expenses are a mixture of the two. The company is allowed to pay certain moving expenses on a tax free basis; e,g. your travel and the cost of moving your household belongings(things that are normally tax deductible). Anything else they pay is suppose to be imputed as income on your W-2. 

How to claim repayment of taxable income

This situation is  described in IRS Publication 525. pgs 34-35.  You can take a  misc itemized deduction, on line 28 of schedule A (not subject to the 2% of AGI threshold) Or you can take a credit. The credit is computed by refiguring the tax return from the previous year as if the income had not been received. Then the difference in tax is claimed as a credit on the current year's return.  In the forms mode (the forms mode is not available in the on-line versions of TurboTax[TT]), you can use the line 73 smart work sheet to enter the credit amount on line 73; select item D, claim of right under IRC 1341 for repayments. TT will  enter "I.R.C.1341" on the line next to box d on line 73 of form 1040. TT does not do the calculation or compare it to the alternate deduction.

So, the taxpayer  has the option of either claiming the credit or deducting the repayment as a miscellaneous itemized deduction, whichever provides the greater benefit. But, you cannot file an amended prior year return. If the amount is $3,000 or less, only the  miscellaneous itemized deduction is allowed and is subject to the 2% of AGI threshold; it goes on line 23 (instead of line 28) of schedule A.

https://www.irs.gov/publications/p17/ch12.html#en_US_2016_publink1000172015

2 replies

Hal_Al
Hal_AlAnswer
Employee
June 6, 2019

It's complicated.

Yes, if you paid back income that was previously taxed.

No, if the moving expenses were tax free.

Most company paid moving expenses are a mixture of the two. The company is allowed to pay certain moving expenses on a tax free basis; e,g. your travel and the cost of moving your household belongings(things that are normally tax deductible). Anything else they pay is suppose to be imputed as income on your W-2. 

How to claim repayment of taxable income

This situation is  described in IRS Publication 525. pgs 34-35.  You can take a  misc itemized deduction, on line 28 of schedule A (not subject to the 2% of AGI threshold) Or you can take a credit. The credit is computed by refiguring the tax return from the previous year as if the income had not been received. Then the difference in tax is claimed as a credit on the current year's return.  In the forms mode (the forms mode is not available in the on-line versions of TurboTax[TT]), you can use the line 73 smart work sheet to enter the credit amount on line 73; select item D, claim of right under IRC 1341 for repayments. TT will  enter "I.R.C.1341" on the line next to box d on line 73 of form 1040. TT does not do the calculation or compare it to the alternate deduction.

So, the taxpayer  has the option of either claiming the credit or deducting the repayment as a miscellaneous itemized deduction, whichever provides the greater benefit. But, you cannot file an amended prior year return. If the amount is $3,000 or less, only the  miscellaneous itemized deduction is allowed and is subject to the 2% of AGI threshold; it goes on line 23 (instead of line 28) of schedule A.

https://www.irs.gov/publications/p17/ch12.html#en_US_2016_publink1000172015

June 6, 2019
Yes, the amount reimbursed by your employer is taxable.
June 11, 2020

I paid back my prorated relocation money, the company sent me an amended W-2 in which the Federal Income block did not change from the previous year, but the medicare and SSA Income amounts were adjusted. I also have not received the difference in medicare and SSA tax over payments from the company. Arent they supposed to deduct that relocation payback from the total federal income block? the company told me to reference General Instructions for W-2 and W-3 for repayment, and that section says they paid me in error which is not correct. What do I do?