Taxability of US Domestic Relocation Benefits – Are You Prepared?

Arguably, the most complicated discussions surrounding domestic relocations involve the tax piece. For any domestic relocation expenses to be qualified as tax deductible, there are a few requirements that must be met, including:

  • The move must correlate with the start date at a new job location
  • The employee must be employed full time for 39 weeks during the 12-month period following the first day of work in the new location
  • The new place of work must be 50 miles farther than the commute from the old residence to the old place of work
  • The expenses must have been incurred due to the move
  • Only reasonable expenses are deductible
  • There is no limit on the dollar amount of deductible expenses

*See IRS publication 521 for further reference

Most domestic relocation expenses are non-deductible and employers should advise transferees of this when they are considering whether to accept a move. Many employers provide for tax counseling and often tax preparation services for the transferees in the year following the completion of the move. By preparing employees in advance, the employer can avert any unpleasant surprises and employee dissatisfaction at tax time.

There are essentially only three relocation benefits that are excludable, with the remainder all being subject to taxes. The three excludable benefits are:

  • The household goods move including storage for up to 30 days
  • The sale of the home in the departure location ONLY via an Amended Value Option (AV) or Buyer Value Option (BVO) administered through a Relocation Management Company (RMC)
  • The final trip to the new location, excluding meals

Below you will find a summary of the most popular domestic relocation benefits and a notation regarding whether or not the benefit is excludable. Relocation Counselors and others who work with domestic transferees should have this information available and understand it thoroughly. For any questions beyond basic taxability questions, it is always best to refer the transferee to a qualified tax professional.

 

Policy Component
Excludable
Home Finding Trip(s) No
New Home Purchase Assistance No
Temporary Housing No
Direct Reimbursement of Home Sale Closing Costs No
Lease Termination No
Guaranteed Buyout Option, Amended Value Option, Buyer Value Option Home Sale Program administered through a Relocation Management Company Yes
Duplicate Housing No
Spousal Assistance No
Movement of Household Goods:
–    Van line services
–    Valuation
–    Storage of household goods to 30 days
–    Storage of household goods beyond 30 days
–    Automobile(s)
Yes
Yes
Yes
No
Yes
Final Trip to the New Location:
–    Meals
–    Lodging
–    Mileage reimbursed to current IRS rate
–    Mileage reimbursed above current IRS rate
No
Yes
Yes
No

 


Want to know more about Employer and Transferee Taxation of Relocation Expenses?Relocation Tax & the Mobile Workforce

Relocation Tax and the Mobile Workforce will cover:

  • Relocation Tax Best Practices
  • Tax Guidelines for Homesale Assistance benefit
  • Relocation Policy components and Taxability

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