Prior to the Tax Cuts and Jobs Act of 2017, some relocation benefits were not considered taxable income for employees. Employers could also deduct relocation expenses sustained when relocating their employees. As a result of this legislation, employees now have to pay tax on most benefits they receive and employers can no longer classify relocation expenses as tax deductible.
Relocation expenses, both reimbursed to an individual or paid to a vendor on behalf of an individual, are taxable income to the individual. Beyond cash payments and bonus incentives, the cost of flights and moving fees paid by a company whether temporary or permanent are all taxable. At the organization’s discretion, taxes owed by the employee on third-party payments may be reimbursed.
Reimbursement of taxes owed is also known as “gross-up”. Gross-up is additional money an employer pays an employee to offset additional income taxes the employee would owe the IRS when that employee receives company-provided benefits, such as relocation expenses.
One of the most challenging aspects of an employee relocation is year-end preparation and tax gross-up. The process of preparing to facilitate efficient tax filing and reconciling all of the data that has accumulated over the past year on the part of the transferee can be a very daunting task.
Here are some things to consider when preparing for year-end and tax gross-up:
- Identify employees that received relocation services
- Indicate due dates, being mindful of where a fiscal year-end reporting schedule applies
- Account for all compensation data including income, incentives, flights, moving expenses, etc.
- Double check addresses, social security numbers, wages, benefits, vacation, and sick time
- Include final payroll reports of the year, inclusive of year-end incentives and bonuses
- Send data ahead of time when possible due to locations with quick turnaround times to make final tax payment of the year
Best wishes in hoping you have a successful year end!
About: Signature Relocation has been a full-service relocation provider since 1998. We offer a complete range of domestic U.S. and global relocation services. Signature Relocation provides custom-based support in program administration and single-point-of-contact management of home sales, destination services, household goods move management, and international assignment support.
To learn more information about the quality services we offer you can visit us at www.signaturerelo.com, or contact us by phone (877-373-0691) or email ([email protected]) for more information.