As of February 2018, there are 20 US states that do not follow – or conform to – recent changes to the Federal Internal Revenue Code (IRC). Two states do not reference the IRC and the remainder follow the IRC as of a date prior to the recent Tax Cuts and Jobs Act of 2017, thus treating qualified moving expenses paid in 2018 as excluded from compensation reporting or deductible by the employee. Those states are: Arizona, Arkansas, California, Georgia, Hawaii, Idaho, Indiana, Iowa, Kentucky, Maine, Massachusetts, Minnesota, Mississippi, New Jersey, North Carolina, Oregon, South Carolina, Virginia, West Virginia, and Wisconsin.
There are already a few states that have passed, or are in the process of passing, legislation that will change the IRC conformity date. The expectation is that most of these states will update their conformity date in the coming months. However, many of them will probably set conformity to law effective as of Dec 31, 2017 or similar for purposes of the 2017 tax year. These same states could pass legislation this time next year setting the conformity date to Dec 31, 2018 for the 2018 tax year, which means that previously excludable expenses would be considered taxable in 2018.
Ineo is using currently enacted law in these 20 states to determine taxability for these qualified moving expenses and has included options for its clients to process the related relocation expenses for state reporting purposes as either taxable or nontaxable, depending on the assumption the client makes.
Ineo will continually communicate with its clients as to updates for the states as legislation may change throughout the year. Ineo will also provide specific details for year-end processing for state purposes.
We recommend employers discuss with their payroll contacts the capability of accepting a state reportable wages amount which is separate and different from the Federal reportable wages amount.