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    Create a payroll item for Moving Expenses

    Article ID: 1002610

    Overview

    Moving expenses can be a challenge to interpret. They may be considered a fringe benefit, or they may be supplemental wages. If they are a fringe benefit, some expenses are subject to tax, and others are not. They are part of the employee's total compensation for tax purposes, even though the employer has paid them on the employee's behalf.

    In some cases, the employer will simply pay the employee a lump sum to cover anticipated costs. It is then up to the employee to pay for the moving expenses. The money paid is considered supplemental wages, much like a bonus. Taxes are withheld at the time of payment. In a case like this, the payment is in cash wages, and is not considered a fringe benefit.

    If an employer pays for moving expenses under one of two circumstances, the funds are considered a fringe benefit:

    • The employer pays a third-party, such as a moving company directly
    • The employer refunds an employee for moving-related expenses.

    If either of the two circumstances above exists, the funds must be reported through payroll as a fringe benefit.
    For more information on Fringe Benefits, please visit:

    Details

    Before beginning, be sure to verify the type of moving expense you have, qualified or non-qualified. This is important because you may have to enter the benefit on two lines of the paycheck:

    • One for qualified moving expenses that are not subject to tax
    • One for non-qualified moving expenses that are taxes as income

    Moving Expenses Definition

    Qualified Moving Expenses Definition:

    Qualified Moving Expenses Paid to a Third Party (such as a moving company):
    • The benefit must be reported, but is not subject to tax
    • Reporting is required so that the benefit can be included on the W-2 in box 12 with a P code
    • Funds are not included in box 1 of the W-2 as income

    Qualified Moving Expenses include:
    • Costs to move possessions
    • Storage during transition (limited time allowed)
    • Travel and lodging expenses directly related to the move (time and distance tests apply)

    The customer is responsible for knowing how taxes apply to moving expenses. Direct the customer to the following IRS resources or the tax professional for more information:

    Non-Qualified Moving Expenses Definition:


    Non-Qualified Moving Expenses:
    • Regardless of how the amounts are paid, is fully taxable as income.
    • Funds are included in boxes 1, 3, & 5 of the W-2 as income

    Non-Qualified Moving Expenses include:
    • Meals
    • Travel and lodging not directly associated with the move
    • Temporary living expenses

    The customer is responsible for knowing how taxes apply to moving expenses. Direct the customer to the following IRS resources or the tax professional for more information:

    Use this table to help determine how to report moving expenses:

    Qualified Moving ExpenseNon-Qualified Moving Expense
    Employee ReimbursedReport in payroll as a cash fringe benefit (in only, not subject to tax) Report in payroll as a cash fringe benefit (in only, fully taxable)
    Paid Directly to Service ProviderDo not report in payroll
    Report in payroll as a non-cash fringe benefit (in/out, fully taxable)

    Payroll Item Creation:

    Create a Qualified Moving Expense payroll item to reimburse an employee:

    The amount entered using this payroll item will increase the net of the check, but has no effect on taxable wages.
    1. Create a new payroll item.
      • QuickBooks Pro and Premier:
        1. From the Lists menu, click Payroll Item List.
        2. Click Payroll Item and click New.
    2. Select Custom Setup, click Next.
    3. Select Addition, click Next.
    4. Enter a name for the addition payroll item such as Qualified Moving Expense, click Next.
    5. Choose a Expense Account, click Next.
    6. Select Qual. Moving Expense as the Tax Tracking type from the drop-down menu and click Next.
    7. The taxes should automatically be set up based on the Tax Tracking type chosen on the previous screen. These should not be changed.
    8. Click Next.
    9. On the Calculate Based on Quantity window, choose Neither.
    10. Click Next.
    11. If the Gross vs. Net and Default rate and limit screens appear, fill in the information as needed and click Next.
      • Generally, if the amount is a percentage (%) of employee's gross earnings, select gross, if it is a fixed dollar amount select net. Gross vs. net affects reports, but taxability of item is based on tax tracking type selected, not by gross vs. net calculation.
    12. Click Finish.

    Create a Non-Qualified Moving Expense payroll item to reimburse an employee:

    This payroll item will increase the taxable wages on the paycheck.
    1. Create a new payroll item.
      • QuickBooks Pro and Premier:
        1. From the Lists menu, click Payroll Item List.
        2. Click Payroll Item and click New.
    2. Select Custom Setup, click Next.
    3. Select Addition, click Next.
    4. Enter a name for the addition payroll item such as Non-Qualified Moving Expense, click Next.
    5. Choose a Expense Account, click Next.
    6. Select Other Moving Expense as the Tax Tracking type from the drop-down menu and click Next.
    7. The taxes should automatically be set up based on the Tax Tracking type chosen on the previous screen. These should not be changed.
    8. Click Next.
    9. On the Calculate Based on Quantity window, choose Neither.
    10. Click Next.
    11. If the Gross vs. Net and Default rate and limit screens appear, fill in the information as needed and click Next.
      • Generally, if the amount is a percentage (%) of employee's gross earnings, select gross, if it is a fixed dollar amount select net. Gross vs. net affects reports, but taxability of item is based on tax tracking type selected, not by gross vs. net calculation.
    12. Click Finish.

    Create a Non-Qualified or Qualified Moving Expense payroll item if the employee has already received the money:

    This type of payroll item, when added to a paycheck, will add the value of payroll item to be reported or taxed appropriately, but not increase net pay.
    1. Create a new payroll item.
      • QuickBooks Pro and Premier:
        1. From the Lists menu, click Payroll Item List.
        2. Click Payroll Item and click New.
    2. Select Custom Setup, click Next.
    3. Select Company Contribution, click Next.
    4. Enter a name for the addition payroll item such as Qualified Moving Expense or Non-Qualified Moving Expense, click Next.
    5. Choose a Liability and Expense Account, click Next.
    6. Select Qual. Moving Expense (for Qualified Moving expenses) or Other Moving Expense (for non-qualified moving expenses) as the Tax Tracking type from the drop-down menu and click Next.
    7. The taxes should automatically be set up based on the Tax Tracking type chosen on the previous screen. These should not be changed.
    8. Click Next.
    9. On the Calculate Based on Quantity window, choose Neither.
    10. Click Next.
    11. If the Gross vs. Net and Default rate and limit screens appear, fill in the information as needed and click Next.
      • Generally, if the amount is a percentage (%) of employee's gross earnings, select gross, if it is a fixed dollar amount select net. Gross vs. net affects reports, but taxability of item is based on tax tracking type selected, not by gross vs. net calculation.
    12. Click Finish.
    Important: Company Contribution payroll items used when creating paychecks will show positive balances in your Payroll Liability Balance report. If you have already paid the amount of Moving Expenses, and wish to zero out the balances showing as owed, you will need to do a company level liability adjustment. For instructions see Adjust payroll liabilities.

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