Using Tax Laws To Reduce Moving Costs
It’s a fact that tax assistance benefits cost an average 55-60 cents for every dollar of taxable relocation expense. In other words, a $10,000 lump sum payment could result in $5,500 to $6,000 of tax assistance costs.
While potentially substantial, these charges can be mitigated: By properly structuring relocation benefits, taking advantage of relocation-friendly tax laws and customizing tax assistance policy to the needs of transferring employees, companies can control and potentially reduce tax assistance costs.
closing cost reimbursement: an easily reduced expense
While structured home sale programs have become the norm, many companies still take the more traditional approach of reimbursing their employees for closing costs after the home is sold. This is the most expensive – and most easily avoided – tax approach a company can take: Considering the average cost of tax assistance, a direct reimbursement program can result in $14,400 in unnecessary tax assistance benefits on the sale of a $300,000 home.
how qualified home sale programs can lower unnecessary tax benefits
In November 2005, the IRS validated the long-held relocation industry position that qualified home sale programs result in no taxable income to relocating employees. TRC helps corporations meet IRS guidelines for qualified home sales by acting as an agent to facilitate two separate and distinct real estate transactions that comply with 11 key elements addressed in the IRS ruling.
Without going too far into exceptions and special considerations, here are a few examples:
- Some relocation expenses such as household goods and storage for less than 31 days and final-move travel and lodging are not taxable income to the employee.
- To exclude household goods shipment and final move expenses from an employee’s income, the employee must complete the move within one year of the date his or her new job begins.
- To exclude household goods shipment and final move expenses from an employee’s income, the employee must be employed for at least 75% of the year after he or she moved.
- An employee’s move will meet the IRS’s distance test if the new main job location is at least 50 miles farther from the employee’s former home than the employee’s former main job location was from his or her former home.
a clear opportunity for improvement
According to the Worldwide ERC® 2009 U.S. Benchmarking Survey, approximately one-third of all U.S. corporations are operating without a tax-protected home sale program. TRC specializes in helping these companies reduce their tax exposure, potentially saving thousands of dollars on each relocation.
Links to additional information
In our next blog we’ll discuss short sales as they relate to corporate relocations.