August 27, 2019
Re: § 58.1-1821 Application: Individual Income Tax
Dear *****:
This will respond to your letter in which you seek correction of the individual income tax assessment issued to ***** (the “Taxpayers”) for the taxable year ended December 31, 2015.
FACTS
The Taxpayers, a husband and wife, filed a joint 2015 Virginia resident individual income tax return, claiming a subtraction for moving expense reimbursement. The Department disallowed the subtraction and issued an assessment. The Taxpayers appealed, contending they were entitled to the subtraction because the reimbursement did not constitute income.
DETERMINATION
Virginia Code § 58.1-301 provides that the terminology and references used in Title 58.1 of the Code of Virginia will have the same meaning as provided in the Internal Revenue Code (IRC) unless a different meaning is clearly required. For individual income tax purposes, Virginia conforms to federal law in that it starts the computation of Virginia taxable income with federal adjusted gross income (FAGI). Income included in the FAGI of a Virginia resident is subject to taxation by Virginia, unless it is specifically exempt as a Virginia modification pursuant to Virginia Code §§ 58.1-322.01 through 58.1-322.04.
For taxable years prior to 2018, qualified moving expense reimbursements were excluded from FAGI. See IRC § 132. If a taxpayer was reimbursed qualified moving expenses by their employer under an accountable plan, then the income would qualify for the federal exclusion and would not be included in a taxpayer’s FAGI. Instead of being reported as income in Box 1 of a taxpayer’s W-2, it would be reported in Box 12, under code P. To qualify as an accountable plan, the reimbursement arrangement must have ensured that the expenses had a business connection, that the taxpayer provided an adequate accounting of the expenses to their employer within a reasonable time, and that the taxpayer returned any excess reimbursement within a reasonable time. See Treas. Reg. § 1.62-2. Moving expense reimbursements not made under an accountable plan did not qualify for the exclusion. There is no Virginia modification for qualified moving expenses, and because the starting point in computing Virginia taxable income is FAGI, moving expense reimbursements would be subject to Virginia income tax to the extent they were included, if at all, in FAGI.
The Taxpayers claim that the husband’s employment required them to move to Virginia in late 2014. The husband received two form W-2s for the 2015 taxable year. The Taxpayers claim one of those W-2s related to a reimbursement of moving expenses. The W-2 does show an amount excluded from income in Box 12 under code P. A far larger amount of income was reported on that W-2 as taxable, and the Taxpayers included that amount in their FAGI. All income included in the FAGI of a Virginia resident is subject to taxation by Virginia unless it is specifically exempt pursuant to a Virginia modification. As stated above, there is no Virginia modification for moving expense reimbursements. If the reimbursement was not subject to tax, it would not have been included in FAGI.
Accordingly, the Department was correct in disallowing the subtraction and the assessment is upheld. The Taxpayers will receive an updated bill, which will include accrued interest to date. The Taxpayers should remit the balance due within 30 days of the bill date to avoid the accrual of additional interest.
The Taxpayers claim they have experienced financial hardship since moving to Virginia. If the assessment creates a financial hardship, the Taxpayers may pursue an offer in compromise based on doubtful collectability. To begin that process, the Taxpayers should complete the enclosed Offer in Compromise Form and Financial Information Statement. The completed form and statement will allow the Department to review and analyze the Taxpayers’ financial situation. Upon completion of that review, a response will be issued to the Taxpayers. The Taxpayers also have the option to request a payment agreement with the Department’s Collections Unit. The Collections Unit may be contacted at (804) 367-8045.
The Code of Virginia sections cited are available on-line at www.tax.virginia.gov in the Laws, Rules & Decisions section of the Department’s web site. If you have any questions regarding this determination, you may contact ***** in the Office of Tax Policy, Appeals and Rulings, at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/2003C