2027 Mobility Tax Guide for Tax Year 2026

Because the gross-up payment is taxable income too. Covering only the tax on the original reimbursement leaves the employee short, so employers typically use the formula tax rate ÷ (1 − tax rate) to cover the tax on the tax as well. In an example from our current guide, an employee with a 36.65% combined rate needs a 57.85% gross-up. On a $10,000 nondeductible expense, that’s $5,785 in tax assistance, so the employee nets the full $10,000. (Illustrative rates from the tax year 2025 edition.)

An assignment expected to last one year or less is treated as temporary, and many related expenses can be non-taxable, similar to a business trip. If expectations later change and the assignment will run longer than a year, it stays temporary only until the date the expectation changed. Expenses after that date follow relocation tax rules. The reverse also applies: an assignment expected to last more than a year is treated as a relocation even if it ends early, because the intent at the start determines the treatment.

Yes. The moving expense deduction, suspended under the 2017 Tax Cuts and Jobs Act, had been scheduled to return in 2026. The One Big Beautiful Bill Act made the suspension permanent for non-military moves. Employer reimbursements for moving costs such as household goods shipment, storage, and final move expenses remain taxable to the employee at the federal level, so gross-up remains part of relocation budgets. Qualified active-duty military moves are still an exception.

For tax year 2026, seven states depart from the federal rules on moving expenses: Arkansas, California, Hawaii, Massachusetts, New Jersey, New York, and Pennsylvania. Massachusetts joins the list in 2026, when it extends its state moving expense deduction to all qualifying taxpayers, not just members of the armed forces. In these states, household goods shipment, some storage, and certain final move expenses can be treated as excludable by the employer or deductible by the employee for state tax purposes, even though they aren’t deductible federally.

Employees who earn wages in more than one state during a move generally file a part-year return in each state. Most states require withholding where the income is earned, and tax paid to the work state can usually be claimed as a credit on the resident state return. The exception is states with reciprocal agreements, where the employee is taxed only in their state of residence.