In the case of some fringe benefits that are offered to or given to employees, certain benefits can be excluded from an employee’s income because the expenses would normally be deductible on an individual’s personal income tax return. A moving or relocation expense is one such benefit. An individual who relocates because of a change in employment may attach a Form 3903 to his annual Form 1040 to deduct certain qualified moving expenses. And employers may either pay or reimburse an employee’s moving expenses without taxing the payments if the expenses would otherwise have been deductible using Form 3903.

Employers who pay for the relocation expenses of an employee have the freedom to pay for whatever expenses they wish, but only those expenses that qualify as deductible can be excluded from the employee’s income. All other expenses paid or reimbursed are subject to withholding for federal income, social security, and Medicare taxes. The employer is also responsible for including such payments for FUTA taxes, and in most states the expenses are also subject to tax withholding.