Are Relocation Expenses Taxable? [Ultimate Guide for 2024] (2024)

Need a refresher on how Relocation Tax now works? This guide will help you to gain an understanding of how relocation taxes work for both the business and employee.

Here’s what we will be covering in this article:

• What Changed for Relocation Tax?
• The Difference Between Relocation Bonuses and Reimbursem*nt
• Relocation Lump Sum Tax
• The Tax “Gross Up” Method
• Other Relocation Tax Examples
• Other Considerations

We strongly consider seeking the advice of our industry leading relocation company for any specialist tax information.

What Changed for Relocation Tax?

Before the Tax Cuts and Jobs Act of 2017, relocation benefits were not considered taxable income for employees. Employers could also deduct relocation expenses incurred when relocating their employees.As a result of the new legislation, employees now have to pay tax on any benefits they receive and employers no longer classify relocation as a tax deductible. There are, however, savvier ways of working to ensure an employer is tax compliant and an employee isn’t stung, creating a smooth and efficient relocation process.

What’s the Difference Between a Relocation Package and Reimbursem*nt?

The relocation package is the option provided by a business to an employee to begin the process. Some employers also offer a relocation signing bonus in addition to the package.Depending on the type of package (some options are Lump Sum, Budget Managed or Tiered Packages), the money is usually paid to the employee once they have accepted the role and the relocation is in its early stage.In reimbursem*nt, an employee covers the relocation themselves and is paid back by the business once the relocation is completed. Receipts are provided, and the business can still outline what the relocation includes.

Relocation Lump Sum Tax

A lump sum payment is when an employer provides the employee with cash or a check to cover the cost of their relocation upfront. It is the employee’s responsibility to pay tax on the money they receive as it is classed additional income on top of their salary.

For example, if a salary is \$80,000 and a lump sum of \$10,000 is provided, the earnings for that year are counted as \$90,000 The employee would not only have to pay their income tax bill on their salary but, a percentage of tax would also have to be paid on the lump sum.

Some employers choose to provide tax assistance, aka “gross up” – more on that shortly – but, if they do not, the employee’s relocation costs could increase to take into account the tax bill they have coming their way.

Tax Brackets and Federal Tax Income depend on various factors:

• Salary
• Filing Status
• Location (city and/or state)

Did you know… that it’s not just cash payments, bonuses and incentives that are taxable? The cost of the flights, moving fees and any payouts made by a company for accommodation – temporary or permanent – are all taxable?

The Tax “Gross Up” Method

Grossing up is when an employer will increase the amount of the relocation package to help the employee cover the cost of their income tax bill.

It’s more commonly used for lump sum payments however, it can be applied to most forms of relocation packages as demonstrated in the examples below.

Other Relocation Tax Examples

These examples for reimbursem*nt and relocation packages don’t include a gross up and as you can see get pretty expensive for employees.

Final Considerations

Whether it’s grossing up or reimbursing expenses, everything must be tracked thoroughly. Managing the payments back to the employee and even paying for the services directly can become a long, painstaking process. Allocating this work to a third-party provider with the resources to do this is an option to consider.

You also want to keep the process cost effective for you and the employee. Providing a managed budget and reviewing the different kinds of relocation packages available can mean the difference between a calm, cool process or a panicked new recruit with a rather large tax bill and moving fees.

Bill Mulholland, SCRP, GMS
Founder & Owner
ARC Relocation

About Bill

In his role as Director of Business Development at ARC Bill oversees all aspects of the growth initiatives for both government and corporate clients, domestically and globally. Bill graduated from George Mason University with a BA in Psychology and has been in the relocation industry since 2000. Bill has earned both his SCRP and GMS designations from ERC. Bill is the former President for the Greater Washington Area Employee Relocation Council (GWERC), ERC content committee member, ERC Ambassador, the recipient of the ERC’s “Meritorious Service Award” and “Distinguished Service Award”.