Company Paid Relocation Expenses, Can't get full understanding of taxes/benefit value

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adam61
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Company Paid Relocation Expenses, Can't get full understanding of taxes/benefit value

Post by adam61 » Wed Feb 10, 2016 11:41 am

My company is asking me to move for a promotion. They have what seem to be very favorable relocation benefits. But I'm unsure what the tax consequences are and even if I work with a CPA on next year's taxes the move will have already been made, so I know specific tax advice can't be given, but could someone provide me a "general" answer or point me in the right direction to research. I don't want a benefit to become a nightmare.

1) Lump Sum Moving Payment: $15k (This is W2 income and fully taxable as I understand it) It is designed to help with maintaining 2 homes, driving back and forth while my family moves etc, is this just straight income?

2) Realtor Fees: The normal 6% fee is completely paid by the company using a nationwide realtor they have contracted with (I think this is tax free, but could be deeply wrong?)

3) Double Appraisal: 2 Full appraisals to help establish market value and set the stage for some of the future benefits (Tax Free from what I can tell)

4) Bouyout Guarantee: If the house isn't sold in 120 days the company purchases for the average market value of the 2 appraisals listed above (This would seem tax free, but I could find no info)

5) Mortgage Cost Stipend: For the first 24 payments on the new home they will pay the difference between the average mortgage at the old location and the new location to help stem the shock of moving from low to high COL area (I think this is straight W2 income?)

6) Relocation expenses (Full cost of packing house, moving items, and unpacking at new location). Paid completely by the company is there a tax cost to me?

Sorry that was a lot, but all in this could be $40-50k in benefits and drastically change the annual tax situation for 2016. I want to make sure I'm prepared and my huge benefit doesn't turn into a tax nightmare surprise at year end. Thanks!!

Side Info: Move is 150 miles, does not change states.

mak1277
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Re: Company Paid Relocation Expenses, Can't get full understanding of taxes/benefit value

Post by mak1277 » Wed Feb 10, 2016 11:44 am

I don't have any specific advice other than: It's good that you're thinking about this ahead of time. I had a similar package and didn't pay any attention to the tax side of it...I was hit with a tax due amount on my federal return of nearly $10k because of the relo benefits. Good luck.

betterfinances
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Re: Company Paid Relocation Expenses, Can't get full understanding of taxes/benefit value

Post by betterfinances » Wed Feb 10, 2016 11:46 am

adam61 wrote:My company is asking me to move for a promotion. They have what seem to be very favorable relocation benefits. But I'm unsure what the tax consequences are and even if I work with a CPA on next year's taxes the move will have already been made, so I know specific tax advice can't be given, but could someone provide me a "general" answer or point me in the right direction to research. I don't want a benefit to become a nightmare.

1) Lump Sum Moving Payment: $15k (This is W2 income and fully taxable as I understand it) It is designed to help with maintaining 2 homes, driving back and forth while my family moves etc, is this just straight income?

2) Realtor Fees: The normal 6% fee is completely paid by the company using a nationwide realtor they have contracted with (I think this is tax free, but could be deeply wrong?)

3) Double Appraisal: 2 Full appraisals to help establish market value and set the stage for some of the future benefits (Tax Free from what I can tell)

4) Bouyout Guarantee: If the house isn't sold in 120 days the company purchases for the average market value of the 2 appraisals listed above (This would seem tax free, but I could find no info)

5) Mortgage Cost Stipend: For the first 24 payments on the new home they will pay the difference between the average mortgage at the old location and the new location to help stem the shock of moving from low to high COL area (I think this is straight W2 income?)

6) Relocation expenses (Full cost of packing house, moving items, and unpacking at new location). Paid completely by the company is there a tax cost to me?

Sorry that was a lot, but all in this could be $40-50k in benefits and drastically change the annual tax situation for 2016. I want to make sure I'm prepared and my huge benefit doesn't turn into a tax nightmare surprise at year end. Thanks!!

Side Info: Move is 150 miles, does not change states.
I had a company paid move, and the tax rules were complex. I can't answer them for you very easily here.

Best suggestion is to ask the company if they know. If they don't, consult with a tax attorney. But you company should know since they are the ones that will have to report the variety of earnings to the government.

In my case, most of the taxable items were tax assisted by the company, so I had little tax liability. I think all I actually paid taxes on was the lump sum payment.

Gill
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Re: Company Paid Relocation Expenses, Can't get full understanding of taxes/benefit value

Post by Gill » Wed Feb 10, 2016 11:47 am

It's really quite simple. All the payments are taxable income and you can offset some of this income with deductible moving expenses.
Gill
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icefr
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Re: Company Paid Relocation Expenses, Can't get full understanding of taxes/benefit value

Post by icefr » Wed Feb 10, 2016 11:49 am

1) is definitely straight income.

My guess is that most of these are straight W-2 income. You probably can't know how much it will really total until everything is all said and done. Your company may or may not "gross up" your income as they report it to cover approximately the taxes due (flat 25% for federal, then social security and medicare and some flat amount for state).

If you're moving near the beginning of the year, I would check in with HR once things are settled to see what your taxable benefits ended up looking like so you can plan for taxes. I would also make sure that you pay enough taxes to not have an underpayment penalty: https://www.irs.gov/publications/p505/ch04.html

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Re: Company Paid Relocation Expenses, Can't get full understanding of taxes/benefit value

Post by Jack FFR1846 » Wed Feb 10, 2016 11:56 am

Can you negotiate for a set number with tax adder?

I ask because I had a friend who did exactly that. He negotiated for a set number where the company paid the tax adder so he knew what he'd net. He then sold every single posession including the house. Gave away his goat and packed his Volvo wagon and a small trailer with what was left and drove from Massachusetts to Texas, where he bought a new house and all new stuff. From memory, the number was about $50k.
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Luke Duke
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Re: Company Paid Relocation Expenses, Can't get full understanding of taxes/benefit value

Post by Luke Duke » Wed Feb 10, 2016 12:54 pm

When I relocated 10yrs ago my company added 33% to the amount to cover taxes.

nimo956
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Re: Company Paid Relocation Expenses, Can't get full understanding of taxes/benefit value

Post by nimo956 » Wed Feb 10, 2016 1:18 pm

I can't find the thread at the moment, but search for posts about relocation packages on the forum. I recall that they often aren't as good of a deal as they appear. Something about how the realtor's incentive is to sell your house quickly, not get the highest price for you.
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Re: Company Paid Relocation Expenses, Can't get full understanding of taxes/benefit value

Post by cadreamer2015 » Wed Feb 10, 2016 1:22 pm

I don't think the realtor and double appraisal are necessarily straight taxable income. It seems to me that they will reduce your cost of selling your home, giving you a higher net proceeds from the home sale. This may or may not be taxable, depending on your cost basis of the home, and whether or not your gain on the sale of the home is greater than $500,000 (or $250,000 if single). But although I've moved several times, twice with company paid benefits, the last time was 8 years ago. And I'm not a CPA.
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Watty
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Re: Company Paid Relocation Expenses, Can't get full understanding of taxes/benefit value

Post by Watty » Wed Feb 10, 2016 2:19 pm

I did a company relocation over ten years ago but the rules are different at different companies and the tax laws have likely changed since them.

A few tips,

Be sure to print and read the IRS rules for what is deductible and what is not deductible.

Here is a link to the IRS rules but you can likely find it as a PDF.
https://www.irs.gov/publications/p521/ar02.html

Spend the time to read it and understand it. Except for the things that are listed in that most compensation is taxable. As I recall the rules were greatly tightened down about 20 years ago but there are still a lot of misconceptions about how it works. You will likely find that other than for the moving van few of the other expenses are deductible.

My company had a written relocation policy on what they would pay for and I gave that to the real estate agents when I sold and bought houses. This allowed them to write uf the home sale and purchase agreements so that most of the things that I paid were covered expenses and the buyer and seller paid the uncovered expenses. This made a huge difference. A few house expenses needed to be stated a specific way in order to qualify for reimbursement. A few of these looked a bit odd to the buyer and seller but they didn't really care when they understood why it was done that way as long as their bottom line was the same.

One HR term to learn is "Gross up". At some companies when they pay a taxable expense they will "gross up" the amount so that the expense will be covered after taxes. For example if you are in the 33% effective tax bracket and have a $1000 expense they might "gross up" the amount to $1500 so you could pay the $500 in taxes and the $1000 expense.

This is important: all the taxable expenses will count as income on your taxes and may cause you to hit income phase outs for various tax credits like the child tax credit. Depending on your 401K this could also make you an Highly Compensated Employee(HCE) which can limit your 401k contributions. This will not be problem in all 401k plans so ask about this.

Covering things like this is part of what the lump sum moving bonus is for.
adam61 wrote:6) Relocation expenses (Full cost of packing house, moving items, and unpacking at new location). Paid completely by the company is there a tax cost to me?
See the link above, probably not. It is best if the company contracts and pays for this directly since moving companies are notorious for charging a lot more than their estimate. My move was no exception and the actual move cost was way more than their original number. I never heard how it was resolved but since the company could threaten them with not using them for future relocations, and has staff lawyers, I suspect that they got a lot better resolution than I could.

The movers will move everything that is in the house so get rid of everything you do not want moved. We had an oily rag that we had been using for wiping down the woodwork in the old home to get it ready for the sale. The movers carefully wrapped that up and packed it. :oops:

Even though the company is paying for the movers be brutal in getting rid of anything that you have not used in the last year. This a a great time to declutter. We did not do this as much as we should have and we still have a few boxed that we never unpacked.

If you are going to a high cost of living area then your next house may be smaller too.
adam61 wrote:Sorry that was a lot, but all in this could be $40-50k in benefits and drastically change the annual tax situation for 2016.
That actually sounds low with the mortage stipend and the home buying and selling costs.

furnace
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Re: Company Paid Relocation Expenses, Can't get full understanding of taxes/benefit value

Post by furnace » Wed Feb 10, 2016 2:22 pm

"6) Relocation expenses (Full cost of packing house, moving items, and unpacking at new location). Paid completely by the company is there a tax cost to me?"

I would say #6 is non-taxable. Make sure this is not added to your W2 income.

Gill
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Re: Company Paid Relocation Expenses, Can't get full understanding of taxes/benefit value

Post by Gill » Wed Feb 10, 2016 3:08 pm

furnace wrote:"6) Relocation expenses (Full cost of packing house, moving items, and unpacking at new location). Paid completely by the company is there a tax cost to me?"

I would say #6 is non-taxable. Make sure this is not added to your W2 income.
Yes, it is taxable, but you can then deduct these items if they qualify as a moving expense.
Gill
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MarkNYC
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Re: Company Paid Relocation Expenses, Can't get full understanding of taxes/benefit value

Post by MarkNYC » Wed Feb 10, 2016 5:06 pm

Gill wrote:
furnace wrote:"6) Relocation expenses (Full cost of packing house, moving items, and unpacking at new location). Paid completely by the company is there a tax cost to me?"

I would say #6 is non-taxable. Make sure this is not added to your W2 income.
Yes, it is taxable, but you can then deduct these items if they qualify as a moving expense.
Gill
Some of it or all of it may not be taxable. If the amount appears on the W-2 in Box 12, with Code P, then it should not be included in the taxable wage amount. The amount must then be reported on line 4 of Moving Expense Form 3903. If total moving expenses (excluding meals) exceeds this amount, the excess is deductible. To the extent the nontaxable employer reimbursement amount exceeds the actual moving expenses, the excess is taxable and goes on the taxable wages line 7 of the 1040. ( this is explained clearly on Form 3903)

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Re: Company Paid Relocation Expenses, Can't get full understanding of taxes/benefit value

Post by zeugmite » Mon Dec 31, 2018 3:53 am

icefr wrote:
Wed Feb 10, 2016 11:49 am
1) is definitely straight income.

My guess is that most of these are straight W-2 income. You probably can't know how much it will really total until everything is all said and done. Your company may or may not "gross up" your income as they report it to cover approximately the taxes due (flat 25% for federal, then social security and medicare and some flat amount for state).
How is it supposed to work? Reimbursements are going to the bank directly as exact receipt amounts, so where will the gross-up amounts be paid? A separate paycheck line item just for the tax?

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Re: Company Paid Relocation Expenses, Can't get full understanding of taxes/benefit value

Post by RickBoglehead » Mon Dec 31, 2018 7:07 am

zeugmite wrote:
Mon Dec 31, 2018 3:53 am
icefr wrote:
Wed Feb 10, 2016 11:49 am
1) is definitely straight income.

My guess is that most of these are straight W-2 income. You probably can't know how much it will really total until everything is all said and done. Your company may or may not "gross up" your income as they report it to cover approximately the taxes due (flat 25% for federal, then social security and medicare and some flat amount for state).
How is it supposed to work? Reimbursements are going to the bank directly as exact receipt amounts, so where will the gross-up amounts be paid? A separate paycheck line item just for the tax?
The company pays the tax directly. You get a pay stub showing zero net pay.

Many don't gross up correctly. The last time I had it done was 2007, and I had to have the company redo things several times. I had to write out the equation for them.
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corn18
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Re: Company Paid Relocation Expenses, Can't get full understanding of taxes/benefit value

Post by corn18 » Mon Dec 31, 2018 7:23 am

I am going through this right now and while it is nice that the company reimburses for all my move expenses, it sucks that they list it as taxable relo on the income side and gross it up wrong. Wrong is a subjective term. They gross it up according to the IRS rules: 25% federal, 3.5% state, 1.9% FICA. They list it as Tax Assist on my pay stub.

The problem with this is my marginal tax brackets are higher: Federal 35%, State 5%, FICA 2.35% and local 1%. So I get the pleasure of paying the difference at tax time. I asked them to gross it up so it is net neutral to me and I got the standard BS that this is company policy (and it is). The best was when they told me that if I made less, I would actually make money on the move. I nearly spit out my coffee at that one. I guess it's better than paying it all out of pocket like I did for my PCS moves with the military.

Here is a good site that discusses the different gross up methods.

https://reloreview.wordpress.com/2017/0 ... ss-up-101/
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zeugmite
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Re: Company Paid Relocation Expenses, Can't get full understanding of taxes/benefit value

Post by zeugmite » Mon Dec 31, 2018 5:20 pm

corn18 wrote:
Mon Dec 31, 2018 7:23 am
I am going through this right now and while it is nice that the company reimburses for all my move expenses, it sucks that they list it as taxable relo on the income side and gross it up wrong. Wrong is a subjective term. They gross it up according to the IRS rules: 25% federal, 3.5% state, 1.9% FICA. They list it as Tax Assist on my pay stub.

The problem with this is my marginal tax brackets are higher: Federal 35%, State 5%, FICA 2.35% and local 1%. So I get the pleasure of paying the difference at tax time. I asked them to gross it up so it is net neutral to me and I got the standard BS that this is company policy (and it is). The best was when they told me that if I made less, I would actually make money on the move. I nearly spit out my coffee at that one. I guess it's better than paying it all out of pocket like I did for my PCS moves with the military.

Here is a good site that discusses the different gross up methods.

https://reloreview.wordpress.com/2017/0 ... ss-up-101/
A flat rate is a better problem to have. I'm worried that some hidden procedure will use my W4 settings in some weird way, and I will only find out when the W2 comes out.

Anyway, I think any method can be fine, as long as it's made known, because it can be part of negotiation and planning then. I've been trying to get an answer out of our Payroll with no success. I don't understand what makes it such a secret...

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