How to Compute Federal Relocation Income Tax Allowance

You may be eligible to deduct moving expenses when you move to work in a new location.

The federal government provides a relocation allowance that allows you to deduct job-related moving costs on your federal income tax return that were not paid for by an employer. To be eligible for this deduction, you will need to pass a distance test, indicating that your new residence is at least 50 miles closer to your new workplace than your old residence was, and you must pass a time test that mandates the amount of time that you need to work in your location. If you are eligible for the allowance, you must complete Internal Revenue Service Form 3903 to calculate the amount that you may deduct.

Things You'll Need

• IRS Form 1040 or Form 1040NR

Instructions

1. Determine whether you are eligible for federal relocation allowances based on the distance test. If your previous residence is more than 50 miles further away from your new workplace than it is from your old workplace, you pass the distance test. If your previous residence is less than 50 miles further away from your new workplace than it is from your old workplace, you are not eligible for the federal relocation allowance.

2. Determine your eligibility for a federal relocation allowance based on the time test. If you are an employee, you must work in the general area that you have moved to for at least 39 out of the first 52 weeks that you live there. If you are self-employed, you must work in the general area that you moved to for at least 78 of the first 104 weeks that you live there. If you do not meet one of these requirements, you are not eligible for the relocation allowance.

   There are certain exceptions to the time test. If you become disabled, are laid off, are transferred to a different location, are a member of the armed forces moving to a new permanent station or are a retiree, you do not need to meet the requirements of the time test to qualify for the allowance.

3. Download IRS Form 3903 from the IRS website (see Resources).

4. Fill in the amount that you paid for transportation and storage of your belongings in line 1.

5. Fill in the amount that you paid for your own transportation and lodging to get from your old home to your new home in line 2.

6. Calculate the sum of lines 1 and 2; write the total in line 3.

7. Write the amount that your employer paid for relocation expenses in line 4. You can find this information in box 12 of your W-2 form.

8. Subtract line 4 from line 3. This is the federal relocation allowance that you may claim as a deduction. Write the total on line 5 and on line 26 of your Form 1040 or Form 1040NR federal income tax return.

9. Attach the completed Form 3903 to your Form 1040 or Form 1040NR federal income tax return.

Tips & Warnings

• If you plan on fulfilling the time test in future years then you may claim a federal relocation allowance for the year that you move. However, you must give up the relocation allowance by filing an amended tax return Form 1040X if you don't end up meeting the time test requirements.

References

• IRS Publication 521: Moving Expenses

Resources

• IRS Form 3903: Moving Expenses