Which relocation expenses are taxable

Note: State of California has yet to determine if state income taxes will also apply. Note: If an employee receives reimbursement for an exceptional expense, it is taxable. Tax withholding , amounts paid for taxable moving expenses, whether or not they are paid directly to an employee, are includible in an employee's gross income, subject to withholding of applicable income, social security, and Medicare taxes.

Please note, the dept. Though the nontaxable moving expenses are excludable from the employee's gross income, the IRS requires that the University report such expenses on the employee's Form W These deductions and exclusions are no longer permitted, except for active duty armed forces personnel.

This legislation took effect for the tax year and is scheduled to sunset in She would owe Federal, state and sometimes local taxes on the bonus and lump sum as ordinary income. Obviously, this is not a formula for happy employees!

The relocation assistance and bonus Erica was expecting turns out to be much less than she expected and perhaps negotiated. Gross-up is an additional payment from the employer to cover the extra taxes due on the relocation benefits. This process ensures that the employee gets the full, expected relocation benefit. Here is an illustration of the impact of tax gross-up :. While it is considered typical and best practice, employers are not obliged to gross up relocation benefits.

Some employers compromise and gross-up only some relocation benefits. Employers that choose not to gross-up should be sure that employees are aware that taxes will be withheld from the payments they are expecting. I n reimbursement, an employee covers the relocation themselves and is paid back by the business once the relocation is completed.

Receipts are provided, and the business can still outline what the relocation includes. A lump sum payment is when an employer provides the employee with cash or a check to cover the cost of their relocation upfront. Tax Brackets and Federal Tax Income depend on various factors:. The cost of the flights, moving fees and any payouts made by a company for accommodation — temporary or permanent — are all taxable? Grossing up is when an employer will increase the amount of the relocation package to help the employee cover the cost of their income tax bill.

For a lot of employers, relocating an employee — new or existing — is the best way for them to acquire and retain the best people for the job. Grossing up their payment is the number one way to keep the package look enticing and avoid a negative moving process. Managing the payments back to the employee and even paying for the services directly can become a long, painstaking process.

Allocating this work to a third-party provider with the resources to do this is an option to consider. You also want to keep the process cost effective for you and the employee.