The passage of the Tax Cuts and Jobs Act in late 2017 and its almost immediate effective date of 1 January 2018 took many in the mobility industry by surprise. One key change, the repeal of the employee moving expenses deduction, left many companies wondering about the tax treatment of three common relocation benefits that historically have been tax deductible for transferees:
• Household Goods Shipment (including pet and automobile shipments)
• Household Goods Storage Expenses
• Final Move Expenses
What’s Changed for 2018 and Beyond
From the perspective of the employer or corporate entity, the impact is not as significant as was initially feared, as the new law continues to treat these benefits as deductible business expenses for the company. Transferring employees were not so lucky. The IRS now classifies any household goods or final move reimbursements paid directly to them or paid on their behalf as income subject to Federal income tax.
Companies have had to decide how to treat this newly taxable relocation benefit. Allowing employees to absorb this added tax burden could create undue hardship for the employees and even make them less likely to accept a relocation. On the other hand, grossing-up household goods and final move expenses increases the company’s relocation costs, at least in the short term. However, the retained business expense deduction will ultimately negate any added expense for the company.
How Other Companies are Handling Employee Moving Expenses
We briefed TRC clients on the new tax law and its effects on mobility benefits, and helped them consider the best path forward for their own organization. Interestingly, a substantial number of our clients remain undecided on whether they will gross-up the newly taxable moving expenses. We attribute this to several factors, including financial teams completing their due diligence, lengthy approval processes, and companies taking the opportunity to look at their relocation policies holistically, making updates to other benefits as well.
Currently, this is how TRC clients are treating moving expenses for tax purposes:
- 59% of companies will gross up the moving expenses
- 5% of companies will NOT gross up the moving expenses
- 5% are undecided
Across a broader corporate population, recent AIRINC showed the following:
- 79% grossing up
- 6% grossing up only for some domestic moves
- 4% not grossing up
- 11% undecided
Going forward, TRC predicts that many of the undecided companies will ultimately elect to gross-up the moving expenses. We will publish an updated breakdown of our clients’ gross-up policies later in the year.
To start your efforts towards compliance with the new relocation benefits tax changes, download this white paper to understand the:
- Changes to Federal Tax Treatment of Moving Expenses;
- New Challenges For High-Cost Locations;
- Reason Behind the Anticipated Popularity of Lump Sums;
- Impact on International Assignments; and
- 3 Immediate Steps You Can Immediately Take.