An international move can entail a good deal of stress, take tons of time to arrange, and set you back a lot of cash. If you’re departing the U.S. and heading overseas long-term for a job, your employer may help with some of the logistics and cover some of the costs, but the move is still likely to take a toll on your nerves and your bank account.
On top of that, if you’re a U.S. citizen or permanent resident you’ll likely be obliged to keep filing U.S. tax returns, despite the fact that you’re living abroad. Thankfully, the IRS may give you a break, in the form of tax deductions carved out for international job-related moves.
For more information on who must pay U.S. taxes, see “Overseas American Citizens' Obligation to Pay U.S. Taxes,” as well as the “Do I Have to File a Return” section of IRS Publication 17. Check out IRS Publication 519 for a discussion of tax-filing requirements for people who spent time in the United States but are not American citizens or lawful permanent residents. These deductions are available to anyone who’s required to pay U.S. taxes as long as they meet the conditions below - your citizenship and immigration status while you were in the United States are of no import.
Also, note that different rules than those discussed below apply to military members moving abroad, as well as to retirees (and survivors of retirees) moving from the United States.
To qualify for moving expenses related to a move for a job, whether departing the U.S. or otherwise, you’ll need to show that the move:
This test requires that your new job location be at least 50 miles further from your former home than your former work place was from your former home.
For example, let’s say you used to live in Mt. Vernon, Washington, and regularly did the long commute of 61 miles to Seattle, but you have since moved out of the U.S. to work at your firm’s Vancouver, Canada office. Your new house is in Vancouver. The first distance called for by the formula is that between your new workplace (Vancouver) and your former home (Mt. Vernon) - that’s 82 miles. Now calculate the distance between your former job place (Seattle) and your former home (Mt. Vernon): 61 miles. You would not qualify for the moving-related deductions because the distance between your new job site and your former home (82 miles) is only 21 miles further than the distance between your old job place and old home (61 miles): 82 - 61 = 21 miles, which is less than the required 50.
Whether you can meet the time test depends in part on whether you are working for an employer or for yourself. If you’re self-employed in your new location abroad, to qualify for the moving-related deductions you will have to actually work for at least 39 of your first 52 weeks in your new location, as well for a cumulative 78 weeks during your first two years in the new location. If you are not self-employed, but rather work for an employer of any size, only the first of those two time tests applies to you: you have to work for at least 39 of the first 52 weeks in the new location.
You don’t have to wait, fortunately, until you have actually met these time requirements to claim the deductions on your tax return - just planning to meet them is sufficient if you've already moved.
But if you claim the deductions and then, say, quit your job and don’t end up meeting the time requirements, you will need to amend the relevant tax return so as to retroactively attribute those amounts to income (and you’ll in turn likely have to pay higher taxes for the year in question).
This test requires that your new place of work and your home abroad be “closely related in place,” which means that your new home must be closer to your new work site than your old house was to your new work site.
If you move from, for example, Kansas City to China for a job, there’s no question that you satisfy this element of the test. But a move just across the border might not satisfy the test. For example, a move from Montreal, Canada, to Northfield, Vermont would not satisfy it if your new place of work is in St. Albans City, Vermont. This is because the distance between your old home (Montreal) and your new workplace (St. Albans City) is 67 miles, which is less than the 72 miles between your new work (St. Albans City) and your new home (Northfield).
But you can get around this distance requirement if you demonstrate that either (i) you would save time or money commuting from your new home to your new work site, as compared to commuting from your old home to your new job place, or (ii) you have to live at the new house as a condition of your employment.
The closely related test also requires you to have started your job in your new location abroad within one year of moving there. There is no requirement that you arranged the job before moving, or even had any leads. This means you can move someplace just because you want to live there and still get the move-related deductions, as long as you take some job within a year of arriving in the foreign country.
As long as you satisfy the three tests described above, you can deduct “reasonable costs” incurred in moving from the U.S. to a place abroad. These include costs for moving your household goods and personal effects and travel from your old house to your new home.
“Personal effects” includes, but is not necessarily limited to, moveable personal property which you own and “frequently” use – everything from your laptop to your books to your towels. The household effects category includes costs for the packing, crating, and transportation of your property. Temporary storage and insurance costs for your goods and effects are usually deductible, as are costs for connecting/disconnecting utilities. You can also deduct the cost of shipping your car and pets, but vaccination and quarantine fees are not deductible.
The travel category includes the actual mode of transportation as well as lodging expenses. It doesn’t, however, include meals while you’re on the road or in transit.
Some commonly incurred expenses related to moving which you cannot deduct include costs for:
Note that you may be prohibited from deducting some or all of the otherwise-permissible costs discussed above if you take the foreign earned income exclusion. See “Overseas American Citizens' Obligation to Pay U.S. Taxes” for more on this extremely useful tax break for American expatriates.