Hello,

I need some help, and thank you in advance.

Just accepted a job offer and will be moving from the East Coast to CA. The company originally promised a $20,000 relocation assistance, but now they want to pay it out as a sign-on bonus. What are the advantages and disadvantages of that in regard to taxes? I believe I still have a chance to demand it as a relocation, just have to pick up the phone a talk to the VP.

Thanks again,
Stone.

It does not make any difference if it is called Relocation bonus or sign-on bonus. It will be reported as income on your W-2. On your tax return, you will claim deduction for moving expenses using Form 3903.

Mukata is correct - $20K is $20K, and it's taxable. However, some companies will use terms like "relocation assistance with tax true up" - by which they mean that they add about 25% to the assistance to make up for the fact that their payment to you is taxable. That way you end up "whole" after paynig your moving expenses and taxes. For example if the assistance is $20K they would actually pay you about $25K, and report that $25K to the IRS. Clearly that's better than a simple $20K bonus. So be sure to find out whether rhe "relocation assistance" would be trued-up for taxes or not.

"Tax True Up"?

Never heard that term! I normally see terms like "gross up" or "RITA (for Reimbursed Income Tax Assistance).

But ebaine's explanation is exceptional and spot-on!

Quote:

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Originally Posted by AtlantaTaxExpert

"Tax True Up"??

Never heard that term! I normally see terms like "gross up" or "RITA (for Reimbursed Income Tax Assistance).

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You're right, as always - "Gross up" is the term I should have used.

Thanks Folks.

I should clarify! The company was supposed to reimburse me for my actual moving expenses, as of now I am looking at about $14000 in actual moving expanses. I thought that I can get this reimbursed to me tax-free? My plan was to get them to reimburse the actual cost to me and then pay me the rest of the $20,000 as a bonus (taxable). And, they agreed to that while negotiating the job offer with them.

Thanks again,
Stone

Much of the reimbursement (movement of your Household Goods) IS tax-free, but some is not (such as payments for hotel costs and meals).

A sign-on bonus normally comes with an agreement which says that if you voluntary terminate your employment within one year of hire, you will have to reimburse the company. Prorated (e.g. if you leave after 6 months you'll have to reimburse half of your sign-on bonus to the company).

I don't think it's the same for a relocation bonus. That's the only difference I can think of.. taxes are equal.