In December 2017, the U.S. government passed legislation that directly impacts taxpayers. Under the new law, known as the Tax Cuts and Jobs Act, taxpayers will be unable to claim certain deductions, including job-related moving expenses.
Job-related moving expenses now taxable
In accordance with the new legislation, taxpayers must treat any direct payment or reimbursement of moving expenses received from their employer for job-related moving expenses as taxable income. Previously, employees only needed to pass the time and distance test (criteria 50-miles, 39-weeks, and 1 year) to be qualified to deduct moving expenses related to household goods moves, storage, and final moving expenses. Alternatively, an employee paying their own moving expenses could deduct those moving expenses, even if they didn’t itemize.
Under the Tax Cuts and Jobs Act, all moving expenditures will be taxed accordingly, at least until 2025. However, active-duty military members may still deduct moving expenses.
For employers like you, this can have a significant impact because it could be a deterrent to attracting new talent, or current employees may be less inclined to take a promotion that involves moving. One possible solution you can consider is to offer tax assistance.
What is tax assistance?
Tax assistance, often called gross-up assistance, is an approach where an employer “grosses up” an employee’s taxable relocation benefits. This is done to alleviate some of the tax burden on a portion of the employee’s income. However, there are some benefits and drawbacks with this approach, and it’s important to consider the impact.
Pros and cons of tax assistance
When considering whether or not to implement tax gross-up, you should carefully examine the advantages and disadvantages.
Pros of offering tax assistance
- Helps your relocation program remain competitive.
- Enables you to attract and retain top talent.
- Alleviates some of the tax burdens placed on employees.
Drawbacks associated with tax assistance
- Increasing an employee’s taxable income can change their tax bracket, which may increase the employee’s tax rate and phase out certain tax credits.
- Increases company relocation expenses.
If your company decides to take the tax assistance approach, it is essential your employees are educated on what gross-up is and how it impacts their taxable income. Relocation management companies can help by explaining how tax assistance works to your staff. RMCs can also manage everything, including ensuring tax assistance is correctly calculated and implemented.
At WHR Group, we are committed to helping our clients hire top talent as well as helping their employees feel comfortable in their new location. We can help your company modify its relocation plans to adjust to the new tax law. We’ll also help you to find the best solutions to help alleviate the potential tax burdens associated with moving and relocation for your employees.
For more information on how WHR Group can assist and explain how to incorporate tax assistance, give us a call at 800-523-3318 or email firstname.lastname@example.org.