As part of her package, her employer gave her a $10,000 relocation signing bonus and also paid a moving company $22,000 directly.Carrie’s employer has used a traditional, standard relocation package.Not only does Bertha need to pay more tax, she cannot deduct or exclude her expenses! Her employer reimbursed the $5,000 but her tax bill showed that she earned $80,000 ($75,000 + $5,000). ![]() She paid for her and her partner’s flight’s which were $500, $150 for her poodle to be transported, $3,000 for a moving company and $1,350 for storage.Bertha stayed with her business but relocated to a different state.Bertha took on a new role that pays $75,000 and her tax bill would normally reflect this salary.These examples for reimbursement and relocation packages don’t include a gross up and as you can see get pretty expensive for employees. Grossing up their payment is the number one way to keep the package look enticing and avoid a negative moving process. This costs the company an extra $2,352, but Jim gets the full $5,000 and no unwanted tax bill.įor 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. 32% of his payment is paid in tax, but Jim gets the full $5,000.Jim’s new employer has agreed that his lump sum package is $5,000 but to cover his tax burden they gross up his payment to $7,352.His gross lump sum package is $5,000 and, if Jim falls within the 32% income tax bracket, the net amount for the relocation lump sum would be $3,400 – so $1,600 is lost in tax.Jim’s new employer has offered a lump sum package for his relocation.It’s more commonly used for lump sum payments however, it can be applied to most forms of relocation packages as demonstrated in the examples below. 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. Tax Brackets and Federal Tax Income depend on various factors:ĭid you know… that it’s not just cash payments, bonuses and incentives that are taxable? The cost of the flights, moving fees and any payouts made by a company for accommodation – temporary or permanent – are all taxable? Some employers choose to provide tax assistance, aka “gross up” – more on that shortly – but, if they do not, the employee’s relocation costs could increase to take into account the tax bill they have coming their way. It is the employee’s responsibility to pay tax on the money they receive as it is classed additional income on top of their salary.įor example, if a salary is $80,000 and a lump sum of $10,000 is provided, the earnings for that year are counted as $90,000 The employee would not only have to pay their income tax bill on their salary but, a percentage of tax would also have to be paid on the lump sum. ![]() Relocation Lump Sum TaxĪ lump sum payment is when an employer provides the employee with cash or a check to cover the cost of their relocation upfront. Receipts are provided, and the business can still outline what the relocation includes. Some employers also offer a relocation signing bonus in addition to the package. Depending on the type of package (some options are Lump Sum, Budget Managed or Tiered Packages), the money is usually paid to the employee once they have accepted the role and the relocation is in its early stage. In reimbursement, an employee covers the relocation themselves and is paid back by the business once the relocation is completed. ![]() ![]() The relocation package is the option provided by a business to an employee to begin the process. What’s the Difference Between a Relocation Package and Reimbursement? There are, however, savvier ways of working to ensure an employer is tax compliant and an employee isn’t stung, creating a smooth and efficient relocation process. Employers could also deduct relocation expenses incurred when relocating their employees. As a result of the new legislation, employees now have to pay tax on any benefits they receive and employers no longer classify relocation as a tax deductible. What Changed for Relocation Tax?īefore the Tax Cuts and Jobs Act of 2017, relocation benefits were not considered taxable income for employees. Use our Domestic Relocation Cost Calculator to get an estimate of an employee move. We strongly consider seeking the advice of our industry leading relocation company for any specialist tax information. The Difference Between Relocation Bonuses and Reimbursement.Here’s what we will be covering in this article: Need a refresher on how Relocation Tax now works? This guide will help you to gain an understanding of how relocation taxes work for both the business and employee.
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |