Relocation Tax Assistance: Part 1
A substantial and often hidden expense
Tax assistance is an expensive and sometimes hidden cost of corporate relocation programs. In fact, it’s the third most expensive benefit in a relocation program, on average, after home sale and household goods.More specifically, the 2008 Worldwide ERC® Transfer Volume and Cost Survey reported that it cost an average $76,600 to move an existing employee, of which more than 10% was spent on employee tax assistance benefits. It can cost more to provide tax assistance than to pay for an employee’s house hunting, temporary living and final trip expenses combined!
Since relocation tax assistance is a corporate benefit and not a legal requirement, we often ask our clients if their company’s tax assistance policy is “one size fits all” or if their policy takes into consideration key factors such as employees’ unique tax profiles – such as annual salary, filing status, the number of dependents they have, and the ages of their dependents.
The importance of proportional relocation compensation
Companies with a one-size-fits-all tax assistance policy apply the same tax rates to entry-level, middle management and executive transferees alike. This can result in paying an entry-level employee too much, which puts a burden on the company’s bottom line. Conversely, this approach can result in compensating an executive too little, which places a burden on human resources and payroll departments.
While there’s no single correct way to calculate tax assistance, this is an area where TRC often helps clients come up with a company policy that is accurate, fair and cost-effective while taking into consideration other important factors such as corporate culture, industry norms and budgetary issues. Generally speaking, the more accurate a tax assistance policy is, the more cost-effective it will be.
Minimizing your company’s relocation tax exposure
Company-paid relocation is a substantial benefit for your employees on multiple levels – professional, personal and financial. But every benefit has a cost, and in the case of corporate relocation, these costs can be considerable. Although relocation tax costs are unavoidable, they can be minimized with a properly structured relocation policy and compliance with basic IRS guidelines.
In our next blog, we’ll discuss these IRS guidelines.
Links to additional information
Since 1987, TRC has delivered creative, cost-effective relocation and international assignment services across the United States and in more than 150 other countries around the world. TRC partners with its clients to develop competitive, best-practice relocation programs, drawing from a comprehensive range of relocation services, including U.S. home selling, home finding and consulting services and complete international relocation services. TRC’s client base represents a wide variety of products and services and ranges from startup firms to Global 1000 companies.