With the passage of the Tax Cuts and Jobs Act of 2017, there are key changes to the tax treatment of several common relocation benefits. Whether you are an employee moving domestically or globally or an employer who relocates employees, it is important to be aware of these changes as we head into tax season.
Category: U.S. Relocation
As the name suggests, companies offer supplemental lump sums to cover part of an employee’s relocation costs, not all of them. About one-third of TRC’s clients utilize the supplemental lump sum to cover benefits such as the home finding trip, temporary living and the final move. Companies usually tailor supplemental lump sums to each employee’s move, often by pricing accommodations through preferred providers and including pre-determined amounts for mileage and meals.
According to the Atlas World Group 2017 Corporate Relocation Survey, 50% of companies are using a supplemental lump sum to cover temporary accommodation costs, up from 38% – 43% in years 2011 through 2014. In its 2017 Workforce Mobility Benchmark Report, Runzheimer noted that nearly 50% of the organizations they surveyed manage home finding expenses via a supplemental lump sum. Read More
When discussing lump sum policy, the core/flex policy is an attempt to provide greater flexibility and a better employee relocation experience for the employee while allowing the employer to meet global mobility objectives and contain costs. A perennial complaint of transferring employees is that relocation policies include benefits the employee neither wants nor needs, but do not include alternative benefits that better meet the employees’ needs.
These benefits go unused, which saves the employer money but can leave the employees feeling like their needs have gone unmet. Occasionally, relocating employees ask to trade undesired benefits for ones that are more relevant (e.g. an extension of temporary housing instead of spouse counseling). Most employers view these request as exceptions to policy and deny them.
With a core/flex program, companies often choose to retain a tiered methodology, with tiers typically differentiated by job grade or homeowner/renter status. There is also a trend to have a dedicated “executive” tier for higher-level employees. Within each policy tier, there are specifically defined (core) benefits. Companies determine which core benefits to include by analyzing historical benefits usage data. The core benefits do not have a monetary cap or limit, but employees must use them exactly as defined in the policy. Read More
A managed lump sum policy is similar to a traditional fixed lump sum except the company specifically defines the benefits covered by the lump sum in its policy guidelines. These benefits are sometimes presented as menu items, allowing the employee to choose benefits that best suit his or her needs. Other companies calculate the lump sum based on the benefits they intend to provide. Either way, the company typically provides relocation counseling (either in house or through a third-party provider) to help the employee use the funds most effectively. Unlike the traditional fixed, any unused funds revert back to the company. The company calculates the managed lump sum amount using the same methods as the traditional fixed, sometimes with the assistance of a third-party data provider.
Pros of a Managed Lump Sum Program
This model allows companies to track benefit usage and spend much more reliably than the traditional fixed. This closer control will also help the company to manage costs better with a vetted network of relocation service partners to ensure optimum pricing and quality. From a tax perspective, the employer can make direct vendor payments, allowing it to treat each of the components individually as taxable or non-taxable. Read More
On November 2, 2017, the U.S. House of Representatives Ways and Means Committee released new tax reform legislation entitled the “Tax Cuts and Jobs Act.” Although currently in review and not yet passed into law, there are portions of the proposed tax law that would bring about a significant shock to the global mobility industry. Because of the impact that this bill as it stands would have on our industry, it is imperative to understand what the current proposals entail and what the consequences would be as we move forward into 2018.
Elimination of the Household Goods Moving Expense and Final Move Non-Meal Expense Deduction
The household goods move for the employee is currently seen as excludable or non-taxable. Under the proposed bill, all of these costs will become taxable in 2018 and corporations will need to determine if they are willing to cover the cost of the taxes (or gross-up) on behalf of their transferring employees. As the household goods move is typically one of the most expensive relocation benefits offered (second only to the sale of the home), the financial ramifications for both the employer and the employee are considerable. For example, if a household goods shipment costs $20,000.00 and the estimated gross-up to cover the taxes on the shipment would be $13,000.00, the employer would face an additional $13,000.00 in relocation fees, and the employee would see $33,000.00 of additional taxable income in their W-2—just for the household goods shipment alone. Read More
The loss of workplace productivity during an employee’s corporate relocation, although difficult to measure, is both real and significant, especially given the growth in global mobility. The relocation process by definition creates substantial distraction and dissonance, reducing the employee’s focus and engagement, and ultimately, productivity. There are, however, several things that can be done from the company’s perspective that can assist in lessening the reduction of productivity problem when working with employee relocation. Read More
Too often, a company identifies an ideal candidate for a role that will require employee relocation and then communicates only with the candidate about the potential relocation. Ironically, the accompanying spouse/partner and family often endure the brunt of the move. Read More
In developing specifications for a new, outsourced provider, it is best to begin with an evaluation of your current employee mobility process and policies, and a frank assessment of how well they meet the needs of your internal customers (recruiters, managers and relocating employees). You will probably identify aspects that are working well, and that you want the outsourced provider to continue, and others that could be better. Documenting and clearly articulating your needs, expectations and goals will make it easier to evaluate relocation companies and to determine the parameters of the outsourced program. Read More
In the past, many companies relocated employees only occasionally. Typically, these relocations included limited benefits and a narrow range of locations, so it was relatively simple to administer the program and manage a small group of local suppliers in house. Today, global relocation brings so many program, tax and legal considerations that outside expertise is an essential component of administering successful domestic relocation and international relocation packages. Outsourcing global relocation can bring companies several benefits:
Specialized Executive Relocation Expertise
The specialized expertise of full-service relocation management companies is a key reason that companies outsource. Relocation management companies like TRC Global Mobility offer a complete suite of executive relocation services and broad geographic coverage. Experienced relocation providers bring policy consulting expertise and knowledge of relocation best practices and tax and legal requirements. This expertise can help companies to ensure their policy is as competitive and cost-effective as possible—and create time for the company to focus on core business priorities. Read More