What an interesting year. A stagnant government. Obamacare. Tax law changes.
Yet through it all, our economy is growing, jobless claims are down, and the housing market continues to rebound. Our clients continue to see employee relocation as a strategic talent mobility tool, and the improving housing market has made relocation a more viable option for more employees.
If our ailing economy has taught us anything these past five years it has been that to succeed, companies have been forced to employ creative business strategies, especially when it comes to relocation. As we barrel into 2014, let’s look at the top 10 issues now shaping the relocation landscape.
- Itemized deductions: Personal exemptions and itemized deductions are now limited for taxpayers earning more than $250,000 or married couples making more than $300,000. Additionally, there is a 3.8% tax on unearned, investment income for these individuals, so if relocation costs are added to employees’ incomes, it could mean a higher tax burden. That means gross-up costs will likely increase.
- Medicare: Employees earning more than $200,000, or married, joint filers earning more than $250,000, are now subject to a 0.9% Medicare tax. Again, employees need to remember that reimbursed relocation expenses might push adjusted gross income over the threshold, increasing taxable income.
- Home sale credit: Those who bought homes with the home buyer tax credit may have to repay the credit if they sell or rent that home. Some companies opt to reimburse employees in this situation.
- Travel expenses: If you earn less than $200,000 a year, certain unreimbursed relocation costs are deductible. These are primarily expenses related to the final trip to the destination. Although meals are non-deductible, transportation and storage of household goods/personal effects, and travel, including lodging, from your old home to your new home are deductibles.
- Real estate market: According to the National Association of Home Builders, builder confidence for newly built, single-family homes rose four points in October, to 58. The Association also reports that the nationwide market is running at 86 percent of normal economic and housing activity. Additionally, all four U.S. regions reported double-digit sales gains in October: Northeast, 19.2 percent; Midwest, 34 percent; South, 28.2 percent; and West, 15.2 percent. We are slowly returning to a more normal market, which will facilitate home sales and purchases.
- Education: According to the Worldwide ERC, companies are turning to pre-decision counseling, advising employees on what relocation entails and the potential financial impact. This is a protection not limited to the employee, since in the past many companies lost valuable time and money when an employee decided – at the last minute – that the cost of relocation was too great.
- Core-flex programs: The core is a list of eligible relocation benefits within tiers, the flex a list of options that round out the package to meet each employee’s specific needs. According to Worldwide ERC data, 20 percent of companies it surveyed are using core-flex programs, while 11 percent are considering implementing a core-flex program in the near future.
- Rental upswing: Worldwide ERC’s most recent study found that 62 percent of transferees decided to rent rather than buy last year, while 65 percent of companies surveyed saw an increase in homeowners becoming renters. These trends are expected to continue, especially if transferees would be selling their homes at a loss.
- Millennials: The tech-savvy millennial generation – those born between 1980 and early 2000 – numbers around 80 million. Because 83 percent of millennials are willing to relocate – for the right position – many employers have spread their recruiting efforts to previously untapped regions. A typical millennial transferee is single, prefers to rent, and favors social media and e-commerce.
- Social: Before considering relocation, employees factor in quality-of life-issues: spouses’ jobs; acceptance of same-sex relationships; education for their kids; recreation and cultural offerings; weather; culture/attitude in the new location; corporate culture in the new office; and how far their dollar will stretch in the new location. It’s no longer only about the job and salary.