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Should withheld income tax be included as income?
This very topic was the subject of a question on workplace SE https://workplace.stackexchange.com/questions/8996/what-can-relocation-assistance-entail TL/DR;  From tax publication 521 - Moving expenses table regarding how to report IF your Form W-2 shows... your entire reimbursement reported   as   wages in box 1         AND you have... moving expenses    THEN... file Form 3903 showing all allowable  expenses,* but do not   show any   reimbursements. There are tax implications Covered in tax publication 521 - Moving expenses and Employers tax guide to Fringe Benefits related to moving expenses. From the Employers View: Moving Expense Reimbursements This exclusion applies to any amount you directly or indirectly give to an employee, (including services furnished in kind) as payment for, or reimbursement of, moving expenses. You must make the reimbursement under rules similar to those described in chapter 11 of Publication 535 for reimbursement of expenses for travel, meals, and entertainment under accountable plans. The exclusion applies only to reimbursement of moving expenses that the employee could deduct if he or she had paid or incurred them without reimbursement. However, it does not apply if the employee actually deducted the expenses in a previous year.   Deductible moving expenses.   Deductible moving expenses include only the reasonable expenses of: Moving household goods and personal effects from the former home to the new home, and Traveling (including lodging) from the former home to the new home. Deductible moving expenses do not include any expenses for meals and must meet both the distance test and the time test. The distance test is met if the new job location is at least 50 miles farther from the employee's old home than the old job location was. The time test is met if the employee works at least 39 weeks during the first 12 months after arriving in the general area of the new job location. For more information on deductible moving expenses, see Publication 521, Moving Expenses. Employee.   For this exclusion, treat the following individuals as employees. A current employee. A leased employee who has provided services to you on a substantially full-time basis for at least a year if the services are performed under your primary direction or control. Exception for S corporation shareholders.   Do not treat a 2% shareholder of an S corporation as an employee of the corporation for this purpose. A 2% shareholder is someone who directly or indirectly owns (at any time during the year) more than 2% of the corporation's stock or stock with more than 2% of the voting power. Treat a 2% shareholder as you would a partner in a partnership for fringe benefit purposes, but do not treat the benefit as a reduction in distributions to the 2% shareholder. Exclusion from wages.   Generally, you can exclude qualifying moving expense reimbursement you provide to an employee from the employee's wages. If you paid the reimbursement directly to the employee, report the amount in box 12 of Form W-2 with the code “P.” Do not report payments to a third party for the employee's moving expenses or the value of moving services you provided in kind.  From the employees view: The not be included as income the expenses must be from an accountable plan: Accountable Plans To be an accountable plan, your employer's reimbursement arrangement must require you to meet all three of the following rules. Your expenses must have a business connection – that is, you must have paid or incurred deductible expenses while performing services as an employee of your employer. Two examples of this are the reasonable expenses of moving your possessions from your former home to your new home, and traveling from your former home to your new home. You must adequately account to your employer for these expenses within a reasonable period of time. You must return any excess reimbursement or allowance within a reasonable period of time. Also what is interesting is the table regarding how to report IF your Form W-2 shows... your entire reimbursement reported   as   wages in box 1         AND you have... moving expenses    THEN... file Form 3903 showing all allowable  expenses,* but do not   show any   reimbursements.