Therefore, reimbursements for moving expenses are allocable to such a new principal place of employment. If a nonresident is reimbursed for moving expenses incurred in connection with the commencement of work at a new principal place of employment located in Massachusetts, such moving expense reimbursements constitute Massachusetts source income and are therefore subject to Massachusetts income tax. If a nonresident is reimbursed for moving expenses incurred in connection with the commencement of work at a new principal place of work located outside of Massachusetts, such moving expense reimbursements do not constitute Massachusetts source income, and are therefore not subject to Massachusetts income tax. For federal income tax purposes, I.R.C. Section 217 allows a deduction for certain moving expenses paid or incurred during the taxable year in connection with the commencement of work by a taxpayer as an employee or as a self-employed individual at a new principal place of work. See St. 1988, c. 106, s.8.
Withholding is required for wages paid by an employer to an employee.
Section 217, in turn, allows a deduction for certain moving expenses paid or incurred during the taxable year in connection with the commencement or work by the taxpayer as an employee or as a self-employed individual at a new principal place of work, provided that certain requirements are met. Therefore, reimbursements paid specifically for moving expenses are not subject to federal withholding to the extent that it is reasonable to believe that the employee is or will be entitled to deduct such expenses under I.R.C. 217. For purposes of this Directive, no Massachusetts withholding on moving expense reimbursements will be required if the employer reasonably believes that such amounts will be deductible by the employee under I.R.C. 217. See Rev. Rul. Conversely, if the employer does not reasonably believe that such amounts will be deductible by the employee under I. R.C. 217, the employer must withhold on such amounts for Massachusetts withholding purposes.