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Moving expenses shouldn't be taxable - W2 box 12, code P - move was 2017 reimbursed in 2018 IRS Notice 2018-75

taxesrita
Level 1

Proseries is taxing Code P in box 12. The taxpayer is not military, so a form 3903 isn't needed.

There is no option to check a box that says "Not taxable - 2017 move reimbursed in 2018". Apparently, employers were given a grace period, and were instructed that using code P was fine. But IRS notice 2018-75 says they shouldn't be taxable. https://www.irs.gov/pub/irs-drop/n-18-75.pdf

Is there a workaround in proseries? Should i back out wages on another line, and if so, where should it go without causing an efile reject? I can't put a -10000 as code P  to offset, software won't allow below zero, plus that's adjusting a W2.

Do I need to paper file this?


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itonewbie
Level 15

Code P is where an employer provides reimbursement under an accountable plan for qualified moving expenses.  Based on Notice 2018-75, Code P is still applicable to non-military moves as in the case of the OP.

Intuit has taken an incorrect position, not only in PS but also in PTO (and possibly Lacerte) to add the amount in Code P to Box 1 and report that on Line 1 of F.1040.  In PTO, it also assumes FICA had been withheld on the Code P amount and subjects the same to additional medicare tax on F.8959 (although I'm not sure if it does the same on PS).

Given how this has been programmed, backing the amount out on Line 21 is not a viable solution both in terms of presentation and tax impact.  Intuit will need to fix this asap.

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itonewbie
Level 15

Code P is where an employer provides reimbursement under an accountable plan for qualified moving expenses.  Based on Notice 2018-75, Code P is still applicable to non-military moves as in the case of the OP.

Intuit has taken an incorrect position, not only in PS but also in PTO (and possibly Lacerte) to add the amount in Code P to Box 1 and report that on Line 1 of F.1040.  In PTO, it also assumes FICA had been withheld on the Code P amount and subjects the same to additional medicare tax on F.8959 (although I'm not sure if it does the same on PS).

Given how this has been programmed, backing the amount out on Line 21 is not a viable solution both in terms of presentation and tax impact.  Intuit will need to fix this asap.

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itonewbie
Level 15
@The Intuit Boris Could someone from your team please help?  Thanks!
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IntuitAustin
Intuit Alumni
@itonewbie Taking a look at this. Thank you! It may be Monday or later before I get an answer on all products .

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itonewbie
Level 15
Thanks, @Intuit Austin!  Have a great weekend.
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taxesrita
Level 1
Thanks @Intuit Austin !
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taxesrita
Level 1
Thanks @Intuit Austin !
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taxesrita
Level 1
Payroll instructions still said to use code P, and employers won’t (and shouldn't) correct the w2.
Seems like code p has a dual function this tax year. Glad i’m not a programmer.

See bottom p5-top p6
https://www.ey.com/Publication/vwLUAssets/ey-payroll-year-end-checklist-2018/$FILE/ey-payroll-year-e...
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TaxGuyBill
Level 14
I think Intuit was informed of this error back in January/February, but like most other things, they don't give a :poop: and said they are not going to change it.:poop:
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itonewbie
Level 15
Surprise, surprise. :imp::imp:
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itonewbie
Level 15

I dug a bit deeper and it appears that the IRS is aware that payroll vendors and software may have been rejecting Code P for civilians based on W-2 and W-3 instructions where it says the code is to be used only for armed forces personnel.  On that basis, the latest guidance is that Code P should not be used for civilian moves.  Qualified moving expenses described in Notice 2018-75 are still excludable from wages, FIT, FITW, FICA and FUTA but employers may choose to provide a separate statement to affected employees in lieu of using Code P.

https://www.irs.gov/newsroom/frequently-asked-questions-for-moving-expenses

Given this guidance, if Intuit will take some time to fix the problem (which they should do), I may consider ignoring the input for Code P and treat it as if it's not there (at least until Intuit gets this resolved).

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The-Tax-Lady
Level 8

Code P is for Moving expenses paid directly to a member of the military, which you say your client is not.

You may have to paper file, but someone else on the forum may have a better idea for this situation.

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Just-Lisa-Now-
Level 15
Level 15
I don't think its only for military...I've never had a military client but I've seen Code P for moving expenses on many clients W2s in prior years.

♪♫•*¨*•.¸¸♥Lisa♥¸¸.•*¨*•♫♪
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sjrcpa
Level 15
Me, too

ex-AllStar
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The-Tax-Lady
Level 8
That's what ProSeries is using for a description of the P code. I've never had to used it on a return, yet.
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Just-Lisa-Now-
Level 15
Level 15
That's because they only allow it for military in 2018...but its been used for all employer paid moving expenses in prior years...just not all employers realized this.

♪♫•*¨*•.¸¸♥Lisa♥¸¸.•*¨*•♫♪
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The-Tax-Lady
Level 8
Gottcha, good to know. Thanks.
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Just-Lisa-Now-
Level 15
Level 15

Cant you just make the adjustment on Line 21 as a negative amount with reference to  Notice 2018-75  & Section 132(g) ?


♪♫•*¨*•.¸¸♥Lisa♥¸¸.•*¨*•♫♪
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taxesrita
Level 1
That was my initial plan, Lisa. But i wanted to see if intuit had a better answer. I think lacerte does the same thing. I’ll test it tomorrow in my (haha) free time...
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rbynaker
Level 11
@Intuit Austin
We have no way of knowing what gets sent with the efile.  I noticed the 3903 form has now moved the "distance test" under the heading of "For State Use Only" so it's possible that the actual 3903 doesn't transmit for federal if you don't check the "military move" box at the top.

<shrug>  Hopefully Austin will report back in.

In terms of "getting the math right", I was able to use code P $3,000 then link the W-2 to a 3903, then enter the distance test info and put expenses of $5,000 in box 1.  That excludes the $3,000 from wages and shows me $2,000 as deductible moving expenses on the 3903 BUT that $2,000 does NOT carry to the 1040 Schedule 1 (unless I check the military move box).  So this could be the work-around, but I'd want confirmation that PS is not actually transmitting a 3903 with the efile under these circumstances.  It does still erroneously include the $3,000 on the W2/W2G Summary line 12n.  But that's a worksheet that doesn't go anywhere.

Rick
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itonewbie
Level 15
But technically, even before TCJA, F.3903 is only supposed to be filed for unreimbursed qualified moving expenses which the individual incurred and are to be deducted above-the-line.  It should not be filed when all the expenses are already excluded from wages with code P.
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rbynaker
Level 11
ProSeries has always railroaded you into filling out the 3903 any time there's a code P.  Maybe it hasn't been a critical efile stopping error (I don't know) but it's definitely a "red box" error if you don't link the W-2 code P to a 3903, "Form W-2 Worksheet (EmployerName): Link for box 12 code P to Form 3903 must be established."

I've always thought of it (perhaps incorrectly) as something akin to filing a 2441 to justify a W-2 box 10 amount is not taxable.  I looked at the 3903 from 2017 and there's no "who must file" section but I suspect you're right, there's no IRS requirement to file if you have no unreimbursed expenses.

Rick
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rbynaker
Level 11
@itonewbie  I see you're typing something but I gotta run and won't be back in until tomorrow.  So just didn't want you to think I'm ignoring you!
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itonewbie
Level 15
No worries, Rick :smile:

I was just going to say that 3903 is a bit different because these are accountable plans of sort where the employer either pays the vendors directly or reimburses the employees for expenses that are substantiated with the necessary documents.
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rbynaker
Level 11
Found it.  There's a chart in Pub 521 page 6 (2018) confirming that Form 3903 should not be filed.

https://www.irs.gov/pub/irs-pdf/p521.pdf

On the ProSeries side of the house, this is another odd inconsistency.  For other things, PS has a "worksheet" that feeds into the form.  But there doesn't seem to be a "Moving Exp Wks", the only way to remove the error is to fill in the 3903.  They should have a worksheet and, based on the answers in the worksheet, it should generate a 3903 only when required.
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itonewbie
Level 15
@rbynaker, totally agree.
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