2020 W-2 CODE P FOR NON MILITARY INDIVIDUAL

[RANDYBLANK]

 I have a client who's w-2 box 12 is coded P, which as i understand is only for military related moving expenses.  He is not military and I believe that his company has prepared the form incorrectly.  Should I include the relocation payments on form 1040 as wages/compensation?

Thank you for your thoughts on this subject

[Just-Lisa-Now-]

Its been a few years since Ive seen one of these, but I believe that amount should already be included in Box 1 as well.

Code P that just lets him know how much could be excluded as moving expenses IF he was eligible, but since hes not military, we wont be able to utilize the moving expenses..

[BobKamman]

@Just-Lisa-Now-  "since hes not military, he wont be able to utilize the moving expenses."

Aren't you the one who always points out, there still may be a deduction on some state returns?

Not that I know of any.  

[Just-Lisa-Now-]

Again, I havent seen any of these in several years, its quite possible that some states still allow moving expenses.

And I'm in CA, most people are moving OUT of CA and CA doesn't give any credit for those moving away....its possible that CA still lets you use moving expenses if youre moving into CA, and if I had a client that came in with a W2 like this, Id take the time to check it out.

[BobKamman]

@Just-Lisa-Now- 

May your prospective client not be MFJ with a spouse who moved into California at the same time he moved out.  

This reminded me of a Wisconsin case back in 1988 -- the court there decided that the state could not tax sale of residence when gain was carried over to a new one out of state, while allowing the deferral of gain for in-state residences.  But it said that it was OK to deny moving-expense deductions to those moving out of state, while allowing them to those moving to or within the state.  This is just one state's mid-level appeals court, so it's not really precedent for others elsewhere. 

https://law.justia.com/cases/wisconsin/court-of-appeals/1988/86-0372-6.html 

[qbteachmt]

Do they have this person marked as a Veteran or Reserves?

Otherwise, Yes, the employer has it wrong and should only report military moving that is Qualified. Being Veteran might mean they have some payroll setting for him from prior years that they didn't remove.

[BobKamman]

This is probably a case of "some people never get the message," or maybe "IRS didn't make the message clear the first time."  The W-2 instructions for 2020 required this "clarification":

Clarification on code P reporting in Box 12. The only amounts to be reported in Box 12 under code P are moving expense reimbursements paid directly to a member of the U.S. Armed Forces who moves per a military order and incident to a permanent change of station, which are excludable under section 132(g) of the Internal Revenue Code. Employers should not report excludable allowances described under section 912 of the Internal Revenue Code or any other amounts under code P.

[qbteachmt]

The clarification in the instructions is new, and I believe the restatement for clarity reflects that many people still have it wrong from 2018 forward, when the rule changed, but they did not change their payroll coding.

"Per a transition rule in the new law, reimbursements an employer pays to an employee in 2018 for qualified moving expenses incurred in a prior year aren’t subject to federal income or employment taxes"

"but I believe that amount should already be included in Box 1 as well."

"Should I include the relocation payments on form 1040 as wages/compensation?"

I would confirm the FICA math on that W2, to see if they included it and taxed it or not. You can't report what they didn't report. They might need to address and correct this.

When I taught PR, I always get these types of questions that are obviously hangovers from years ago. I taught it as 1 day class or 2 night classes, and one session that was Tue-Thurs evenings of the same week, that's when the 2011 FICA tax holiday was announced on the Wed in between. When I got to class Thurs evening, I asked who in class had picked up on the change that specifically affected these payroll professionals.