For most people, moving expenses are taxed unfavorably: civilians cannot deduct job-related moving costs on a federal return, and any relocation money an employer pays counts as taxable wages. Active-duty military members are the main exception, and starting in 2026 certain intelligence community employees join them. A handful of states still allow a moving expense deduction on state returns even though the federal one is gone for good.
Civilians Get No Federal Deduction
The Tax Cuts and Jobs Act of 2017 suspended the moving expense deduction for everyone except active-duty military from 2018 through 2025. Many taxpayers expected it to return in 2026. It won’t. Section 70113 of the One Big Beautiful Bill Act made the elimination permanent, so a civilian employee or self-employed worker has no federal moving expense deduction in 2026 or any year after under current law.
That means every dollar spent on packing, shipping, travel, and lodging for a job-related move comes out of pocket with no federal tax offset. Before 2018, a qualifying move could shave thousands off taxable income. The math no longer works federally.
Employer-Paid Relocation Counts as Taxable Wages
If your employer covers your move, that money is treated as ordinary wages. It doesn’t matter whether they pay a moving company directly or reimburse you after the fact.1Internal Revenue Service. Moving Expenses to and from the United States The payments show up in boxes 1, 3, and 5 of your W-2 and are subject to federal income tax withholding, Social Security tax, and Medicare tax on the same basis as your salary.2Internal Revenue Service. 2026 General Instructions for Forms W-2 and W-3
So a $15,000 relocation package does not put $15,000 in your pocket. Depending on your bracket, you might net closer to $10,000 after withholding. Some employers add a “gross-up,” meaning they increase the payment by enough to cover the extra tax so you end up with the intended amount. The gross-up itself is also taxable, which is why the numbers on these packages compound. A $15,000 benefit with a gross-up may hit your W-2 as $22,000 or more of taxable wages. Ask before you sign an offer whether a gross-up is included.
The exception is narrow. Reimbursements to active-duty military members, and to qualifying intelligence community employees starting in 2026, for a permanent change of station are excluded from gross income and reported separately with Box 12, Code P on the W-2.2Internal Revenue Service. 2026 General Instructions for Forms W-2 and W-3
The Military and Intelligence Community Exception
Active-duty members of the Armed Forces can still deduct unreimbursed moving costs for a permanent change of station. In 2026, certain intelligence community members become eligible for the same deduction and reimbursement exclusion.3Internal Revenue Service. IRS Sets 2026 Business Standard Mileage Rate at 72.5 Cents per Mile, Up 2.5 Cents
A qualifying PCS covers three situations: moving from home to a first post of active duty, moving between two permanent duty stations, and moving from a final duty station back to a home of record in the United States.4Internal Revenue Service. Instructions for Form 3903 (2025) Spouses and dependents who relocate with the service member qualify too.5Military OneSource. PCS and Taxes: Deducting Military Moving Expenses
What Costs Qualify
Eligible members can deduct the reasonable cost of moving household goods and personal effects, including packing, crating, hauling, connecting and disconnecting utilities, and insuring belongings in transit. Storage counts, but only for 30 consecutive days after items leave the old home and before they arrive at the new one.6Internal Revenue Service. Publication 3 (2025), Armed Forces Tax Guide
Travel to the new home is deductible, including airfare and lodging along the way. If you drive, you can deduct actual gas and oil costs or use the standard mileage rate, set at 20.5 cents per mile for 2026.3Internal Revenue Service. IRS Sets 2026 Business Standard Mileage Rate at 72.5 Cents per Mile, Up 2.5 Cents Meals during the move are never deductible, even for a cross-country trip that takes days.6Internal Revenue Service. Publication 3 (2025), Armed Forces Tax Guide
Costs That Are Never Deductible
Even for members who qualify, plenty of relocation-related spending falls outside the deduction:
- Down payments, closing costs, mortgage fees, and points on a new home loan
- Real estate commissions, pre-sale improvements, and losses on selling the old home
- Forfeited security deposits and fees for entering or breaking a lease
- Car tags and driver’s license fees in the new state
- Return trips back to the former home after the move
These costs feel caused by the move, but the IRS draws a hard line between transporting you and your belongings and the broader financial consequences of changing where you live.
Filing on Form 3903
Qualifying members report moving expenses on IRS Form 3903. The form totals deductible costs, subtracts any government reimbursement, and produces a net deduction that flows to Schedule 1 of Form 1040.4Internal Revenue Service. Instructions for Form 3903 (2025) Using the standard mileage rate spares you from tracking every gas receipt; claiming actual expenses means keeping accurate records of each one.7Internal Revenue Service. 2025 Instructions for Form 3903 – Moving Expenses
State Deductions Still Exist in a Few Places
Roughly seven states never adopted the federal suspension and still allow civilian taxpayers to deduct qualified moving costs on a state return. Definitions and tests vary, but the framework resembles the old federal rules.
Most states with the deduction apply two tests. The distance test requires your new workplace to be at least 50 miles farther from your old home than your previous workplace was. The time test requires full-time work in the new location for at least 39 weeks during the 12 months after the move. Self-employed taxpayers usually face a stricter version: 78 weeks of full-time work over 24 months, with at least 39 in the first year. Military members are generally exempt from both tests.
Deductible costs at the state level track what used to be allowed federally: transporting household goods, travel and lodging to the new home, and mileage for driving. Meals remain excluded. Each state uses its own form, often modeled on the old Form 3903. Because the federal elimination is now permanent, the gap between federal and state treatment is no longer temporary. Confirm with your state tax agency what the current rules and documentation requirements look like before you file.
Reporting Reimbursements and Keeping Records
If your employer reimburses moving expenses and you leave that amount off your return, the IRS treats it like any other unreported wages. The accuracy-related penalty for negligence is 20% of the underpayment, and the civil fraud penalty is 75% of the underpayment attributable to fraud.8Internal Revenue Service. IRM Part 20 Penalty and Interest – 20.1.5 Return Related Penalties An honest mistake on a relocation reimbursement is unlikely to draw a fraud investigation, but the IRS matches W-2s to returns quickly, so underreporting gets caught and you owe tax plus interest. The more common trap is not realizing the reimbursement was taxable in the first place and being surprised by a balance-due notice.
Whether you are claiming a military deduction federally or a civilian deduction on a state return, keep receipts, canceled checks, and other supporting documents for at least three years after filing.9Internal Revenue Service. Topic No. 305, Recordkeeping Hold onto moving company contracts, packing supply receipts, hotel bills, gas receipts or a mileage log, and any PCS orders or employer relocation agreements. If you use the standard mileage rate, a log showing origin, destination, and total miles is enough. One folder, physical or digital, is usually all it takes to answer questions that come up two tax years later.