The Tax Cuts and Jobs Act of 2017, which went into effect January 1, 2018, includes a major change for the relocation industry, more specifically, household goods moving. This new act only affects individuals relocating on behalf of their employer, when the employer is funding the relocation. Prior to this newly enforced act, household goods moving, household goods storage, and the final trip for the employee, and their family to the new destination were not treated as income to the employee and, therefore were not taxable. The Tax Cuts and Jobs Act of 2017 states the amount of money paid for the household goods portion of the relocation, related storage and the final trip to destination is now treated as income and, therefore is taxable to the employee. If the relocation is personal, and not paid for by an employer, these new rules do not apply.
The employee is responsible for paying federal taxes on all aspects of the relocation, including; house-hunting trips, temporary housing, household goods moving and household goods storage. This change has prompted companies to “gross-up” taxable dollars on behalf of the employee, but this is costly and adds to the overall expense of the relocation. A relocation tax gross-up is when an employee receives a one-time tax relocation incentive or reimbursement of taxable relocation costs and the company adds to the reimbursement amount , a tax gross up occurs. If a company does not “gross-up” the tax dollars for the employee, those tax dollars are due from the employee immediately following the relocation event. This applies to all forms of support to the employee; lump sum, reimbursements, direct paid expenses, etc. All are considered taxable income to the employee.
It is very important for relocating employees to understand how their relocation tax dollars are being handled. Is the company “grossing-up” relocation expenses or is the employee responsible for them?
Employees also need to understand the entire expense of the relocation will be added to their taxable income on their federal Form W2 at the end of each year. If an employee’s income is $75,000 annually and the expenses for their move total $20,000, their annual taxable income is now $95,000 for the tax year in which they relocated.
This is a big change in relocation for both the employee and the employer. It is important for each to understand how this will financially impact the relocation. If you have questions, our team is happy to help answer them. Contact us today!