[isabelleb]

Hello,

Iwill like to know if we have to pay state or federal taxes on relocation fees ?

Isabelleb

[excon]

Hello isabell:

Nope. Relocation fees are not income. They're paying you back for expenses involved in moving. We pay tax on income.

excon

[froggy7]

Hello isabell:

Nope. Relocation fees are not income. They're paying you back for expenses involved in moving. We pay tax on income.

excon

Sorry, excon, the proper answer is yes. In my last few job switches, I have had some nice relocation packages, and learned the hard way that you do, in fact, get to pay taxes on them. So, from personal experience, I can tell you that any lump sums paid "to cover relocation costs" are taxed. That's why you want to know the "grossed up" sum... the amount that you start with so that when the taxes are taken out you arrive at the stated sum. In other words, if a company offers you 10k in moving expenses, are they talking before or after taxes? And corporate housing (where they put you up in an apartment for a certain amount of time to allow you to find a spot to move into in the new location) is considered a taxable income, too, which rather shocked me when I found out. And which I found somewhat annoying, because I didn't have any say over how much rent they were spending on the spot, and thus couldn't control the expenses that way. But the IRS does consider these amounts as income, because it is essentially money that the company is giving you for working. If you get a lump sum payment, you aren't actually required to spend it all on moving expenses or to give back what you don't (get 10K, spend 2k of it, and you are up 8k from where you started). And the corporate housing is money that you aren't paying out of your pocket for rent. So the company is essentially paying you X per month extra those months.

Of course, if the original question is whether you have to pay taxes on things involved in moving (storage, moving companies, etc.), that's a different question, but I think the answer is still yes, since those are companies that generally charge some sort of sales tax.

[excon]

Hello froggy:

In this country, we don't have "expense" tax. We have "income" tax. If your employer is reimbursing you for your moving expense, then that reimbursement is NOT income, and not taxable. That's just so.

If, however, your employer gives you a lump sum for moving, that's a different issue. On your tax return you would deduct the actual amount of the move. If there's anything left over, that's INCOME, and you'll pay tax on that.

Nice try froggy, but no cigar.

excon

[froggy7]

Hello, ex-con.

Well, I have been looking on the IRS site, and let's agree to split the difference. You do not pay taxes on reimbursement of deductable moving expenses (moving your stuff and traveling to your new location (which includes lodging but not meals), plus some other related items). You do, however, pay taxes on reimbursement for relocation expenses that are not deductable. And it's the IRS that decides what is deductable, not common sense. I still don't get why it's OK for me to deduct the hotel room I stayed in while moving, but not the meal that I had there.

There's an interesting case study in the IRS guide on this subject, where Tom has 43,000 in relocation expenses, gets reimbursed 10,000 by his employer, winds up paying tax on 3,400 of it, and gets to deduct 1,300 from his income tax for moving expenses (because his employer did not reimburse him for 1300 of deductable expenses). And, I assume, just gets to eat the other 33000.

Edited to make it relocation expenses, not moving costs, because part of his expenses are for selling one house and the down payment on a new one.

[dvthomas]

Sorry, excon, the proper answer is yes. In my last few job switches, I have had some nice relocation packages, and learned the hard way that you do, in fact, get to pay taxes on them. So, from personal experience, I can tell you that any lump sums paid "to cover relocation costs" are taxed. That's why you want to know the "grossed up" sum... the amount that you start with so that when the taxes are taken out you arrive at the stated sum. In other words, if a company offers you 10k in moving expenses, are they talking before or after taxes? And corporate housing (where they put you up in an apartment for a certain amount of time to allow you to find a spot to move into in the new location) is considered a taxable income, too, which rather shocked me when I found out. And which I found somewhat annoying, because I didn't have any say over how much rent they were spending on the spot, and thus couldn't control the expenses that way. But the IRS does consider these amounts as income, because it is essentially money that the company is giving you for working. If you get a lump sum payment, you aren't actually required to spend it all on moving expenses or to give back what you don't (get 10K, spend 2k of it, and you are up 8k from where you started). And the corporate housing is money that you aren't paying out of your pocket for rent. So the company is essentially paying you X per month extra those months.

Of course, if the original question is whether you have to pay taxes on things involved in moving (storage, moving companies, etc.), that's a different question, but I think the answer is still yes, since those are companies that generally charge some sort of sales tax.

How do you determine how much percentage will be deductible from lump sums?

[froggy7]

How do you determine how much percentage will be deductible from lump sums?

The best advice I can give you is go to the IRS site and look for information on moving expenses. They have some forms and explanations that do a better job than I can.

[ebaines]

In my experience (2 corporate moves in the past 5 years) when the company made a lump sum payment to me, they withheld 25% for the feds, the usual amount for Social Security and Medicare taxes (6.2% and 1.45%, respectively), and whatever state tax is normal (3% here in IL). The lump sum is certainly taxable. They also reported on my W2 as taxable income the costs that they covered as explained by Froggy7 above, but also "trued it up" by paying withholding taxes at the rates I mentioned earlier. For example, if they had paid $100 on my behalf to a moving company they would also pay on my behalf to the feds $25 income tax withholding, $6.20 for social security, $1.45 for medicare, and $3.00 to Illinois, and then they reported a total of $135.65 taxable income on my W2. For other normally-deductible moving costs that I paid out of pocket I was able to submit expense vouchers to get reimbursed - like all expense vouchers these are non-taxable to the employee, but of course only those items that the IRS allows could be submitted this way. So when I did my taxes there wasn't a single item I could claim myself as a deductibel moving expense. Make sense?

[dvthomas]

In my experience (2 corporate moves in the past 5 years) when the company made a lump sum payment to me, they withheld 25% for the feds, the usual amount for Social Security and Medicare taxes (6.2% and 1.45%, respectively), and whatever state tax is normal (3% here in IL). The lump sum is certainly taxable. They also reported on my W2 as taxable income the costs that they covered as explained by Froggy7 above, but also "trued it up" by paying withholding taxes at the rates I mentioned earlier. For example, if they had paid $100 on my behalf to a moving company they would also pay on my behalf to the feds $25 income tax withholding, $6.20 for social security, $1.45 for medicare, and $3.00 to Illinois, and then they reported a total of $135.65 taxable income on my W2. For other normally-deductible moving costs that I paid out of pocket I was able to submit expense vouchers to get reimbursed - like all expense vouchers these are non-taxable to the employee, but of course only those items that the IRS allows could be submitted this way. So when I did my taxes there wasn't a single item I could claim myself as a deductibel moving expense. Make sense?

froggy7 & ebaines > Thank you.
So, basically if I decided to take the lump sum of $1000, the calculation will be: $1000 - (feds tax + SS tax + Med tax + State tax)?

[ebaines]

froggy7 & ebaines > Thank you.
So, basically if I decided to take the lump sum of $1000, the calculation will be: $1000 - (feds tax + SS tax + Med tax + State tax)?

Yep.

[jrlevelacctg]

Answered all of my questions

[GHI]

I was shocked when my son's taxable income for a summer internship was inflated by a whopping $7,000, which included $5,000 he never received in subsidies or travel expenses. Apparently $7,000 was paid to a third party and even though only about $2,000 of that amount went to his travel costs and subsidized housing, they added the full amount to his taxable income. Is this legal?? It's certainly not fair!

[froggy7]

I was shocked when my son's taxable income for a summer internship was inflated by a whopping $7,000, which included $5,000 he never received in subsidies or travel expenses. Apparently $7,000 was paid to a third party and even though only about $2,000 of that amount went to his travel costs and subsidized housing, they added the full amount to his taxable income. Is this legal??? It's certainly not fair!

It depends on what that 5k covered. If the money paid for something that was of benefit to your son, then yes, it's probably legal. If he had no benefit from it, then it may not. I'd be talking to HR if I were him and asking what the money covered, etc. If the 5k is overhead that the third party charged to find the subsidized housing, etc. then yes, he probably gets to pay the tax on it. In future, the magic words he wants to hear when relocation packages are mentioned are "grossed up". That means that the company has added the money to cover the taxes to the amount. 10K "grossed up" means that they are giving you 10K + the money to cover the taxes, 10K not grossed up means that you will need to find the money to cover the taxes yourself, so only plan on spending about 6K of it.

[Elcucu]

My company gave me $8000 for relocation but I have to pay it back... Now in my taxes they added as part of my gross income.. Is that correct?

[ebaines]

If in 2011 they paid $8K for relo expenses on your behalf, or if they gave you a lump sum of that amount, then yes - it should be included in your federal wages as reported on your W2.

If you pay the $8K back to you employer in 2012 then you can deduct this payment as an unreimbursed employee expense on your 2012 taxes a year from now. You also can think about deducting some of your moving expenses, since the company has not reimbursed you for the move.

[felix33549]

It is my experience that I moved from overseas to the USA when I retired from Fed. Government. I paid for my household goods move $8,900+ which included 7% taxes paid to that country. I submitted my claim to Cartus for reimbursement. They paid $7,552 after some deductions not covered by their policy. Now Cartus is sending me some type of collection statement called Employee Statement with a balance due Cartus of $1,045.54 tax withholding due from employee for services services rended as part of my relocation. Can someone at there tell me that this is legal? I paid the taxes to the country. Cartus only reimbursed me for the movement of my household goods. If this is considered taxable income? Please help!

[AK lawyer]

... I paid for my household goods move $8,900+ which included 7% taxes paid to that country. ...

This would be a VAT (a/k/a sales tax) tax on services paid for by you, correct?

... I submitted my claim to Cartus for reimbursement.

Cartus is your employer?

... Now Cartus is sending me some type of collection statement called Employee Statement with a balance due Cartus of $1,045.54 tax withholding due from employee for services services rended as part of my relocation. Can someone at there tell me that this is legal? ...

Hard to say. One would have to look at the statement, as well as the terms of your contract or employee rules.

... If this is considered taxable income?

Perhaps some of it. You need to go through the analysis mentioned in the previous posts. In general, look at the I.R.S. bulletins on the subject.

[xpac80]

I got paid 5000 dolars to move to Georgia for a job, they immediately taxed it and I ended up with around 3200 after the government took their bite. The same company paid to move me to Texas and again gave me 5000 dollars to move taxed it and I once again ended up with around 3200 dollars. About 3 months into the job they gave me another check making up for the 1800 dollars taken by taxes because they said they were not legally supposed to tax the money because it was not a bonus check not taxable income, but a relocation check. So I was wondering why the company in Georgia has not reimbursed me for the tax they took out.