With more and more companies looking for creative ways to save money, many have turned to their relocation policies for areas in which to cut costs. One trend that has gained in popularity recently is the temporary domestic assignment (TDA).
The IRS defines a short-term assignment as one that lasts for less than one year. This is a very important distinction because the benefits change from non-taxable or deductible to taxable at the one-year mark. Companies that provide relocation tax assistance can save a considerable amount of money by not having to pay taxes on the benefits.
According to Worldwide ERC (Employee Relocation Council), home sale assistance costs average nearly $45,000 per transferee. On the surface, it might appear that opting for short-term assignments rather than relocation would save companies a bundle, but it’s not so simple.
As a rudimentary example, National Corporate Housing states that the average daily rate for a corporate apartment in the U.S. is approximately $145. Multiply this by 365 days and you get a cost of $52,925. And that doesn’t even account for other short-term assignment costs, like T&E. Of course, there are significant savings equated with a short-term assignment: no homefinding trip, little or no household goods to ship and no home purchase benefit.
As a practical matter, a stay of this length would usually qualify for a larger daily discount, which could essentially make the cost of a short-term assignment and a permanent move similar.
Technological advances and more liberal policies toward remote work arrangements are other factors that have facilitated the rise in TDAs. The face to face working dynamic that is initially created through the TDA can then be carried back to the home office or remote working location and fostered through technology. This allows companies to meet their needs for a specific skill set, build teams and transfer knowledge without having to bear the cost of a permanent relocation, and employees to avoid the some of the stress that comes with relocating their families.
Of course, the family issue is complex and while a TDA does reduce some of the stress, it cannot eliminate it. Most short-term assignments are unaccompanied and some employees and their families struggle when apart for extended periods. This can also be a significant challenge for single parents who might find that they have to turn down an offered assignment.
It is important for companies to keep in mind that TDAs require separate, formal policies, letters of assignment, and defined processes. By having these in place, companies can reduce the risk of tax exposure and increase the odds of a successful, productive assignment for the company and the employee.
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