CapRelo Blog

Calculating Tax Gross Up

Posted by Nicole Overholt on Fri, Jan 13, 2017

tax-calculator.jpgIt's said that death and taxes are the only certainties in life. I'll leave the answer to that question to the great philosophers. However, one thing is an absolute certainty: taxes are a fact of life.

This is particularly true in the employer, employee relationship. The government requires that the employer withhold taxes from the employee's paycheck. Some would call this wise on the government's part, others wouldn't be so kind. In the corporate world, practically everything is taxed, including aspects of relocation packages provided to employees.  Most relocation expenses associated with a move, whether it is a reimbursement made to a transferee or a payment made to a vendor on the transferee’s behalf, is required to be reported as taxable income to the employee and is subject to IRS supplemental withholding regulations.

Find out more about relocation and taxes in our free guide.

Can you imagine the look on your employee's face when you gently explain that the generous relocation benefits provided will increase his or her tax burden? It is a guarantee, the once happy employee's mood will change quickly and not for the better.  Well, fortunately for these employees, a portion of the tax liability of the relocation package can be covered by tax assistance (gross up) paid by the employer. Unfortunately, grossing up can add 55% or more to taxable relocation costs. If you consider the obvious benefit to the employees’ long-term happiness, it is money well spent.

Basically a tax gross up occurs when the employer adds to the taxable relocation amount to assist with the tax liability of the addition of taxable relocation costs to an employee's income. For example, if the relocation costs include $5,000.00 taxable dollars, the employer may pay a total of $7,500.00 so that the employee gets the full benefit of the $5,000.00, as the estimated taxes of $2,500.00 are paid by the employer. 

If you are in planning a relocation move, getting your hands on IRS Publication 521, "Moving Expenses" and Publication 523, "Selling Your Home," available at www.irs.gov would be a good place to start to fully understand IRS regulations regarding relocation expenses.

3 main ways to calculate a tax gross up

1. Flat Method 

The flat method is a flat percentage calculated on the taxable expenses and then added to the income.  For example, an employer will gross up at a rate of 25% for taxable expenses.  If the transferee is paid $1,000, the gross up would be 25% of this, or $250, and therefore the transferee would receive a benefit of $1,250 total.  Note that the gross up is also considered taxable income and may create an additional tax liability to the transferee.

It’s important to note that this method likely doesn't cover the employee's tax liability since the gross up is taxable income. Additionally, this method is not compliant with supplemental withholding regulations.

2. Supplemental/Inverse Method 

This method is often used because not only are relocation expenses considered income, but the gross up is considered income too.  Therefore employers will pay the gross up on the gross up.  To determine the amount, add up all the tax rates (fed, state, OASDI, SS) and then divide the taxable expense by the sum of the tax rates. Take this number and subtract the taxable expense. 

Supplemental-Inverse Gross Up.png

This methodology covers gross up on the gross up, but may not accurately reflect the tax bracket of the employee.

3. Marginal/Inverse Method

This method is typically handled by a CPA or full-service relocation companies and also incorporates the tax on tax calculation. The difference is this methodology takes into account employee income and IRS Form 1040 tax filing status. In most cases policy dictates that only company-earned income will be considered and other forms of income, such as spousal income or investment income, won't be taken into account.

These three methods represent the nitty gritty of grossing up taxable relocation expenses to assist with the employee's relocation tax liability. While one can do the calculations, it is always wiser to seek the help of an experienced relocation experts.

Free All-Inclusive Guide  Relocation and U.S Taxes

Although this written communication may address tax issues, it is not a covered opinion as described in Circular 230.  Therefore, to ensure compliance with requirements imposed by the IRS, we inform you that any tax advice contained in this communication (including any attachments), unless expressly stated otherwise, was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any tax-related matter(s) addressed herein.

Topics: talent retention, tax impact of relocation, calculating tax gross up, talent management

How Do You Calculate Tax Gross-Up?

Posted by Amy Mergler on Thu, Jan 21, 2016

never_too_early_to_prep_for_tax_season.jpg

A tax gross-up is a common benefit to provide to help minimize or reduce transferee out-of-pocket costs associated with their relocation. Because gross-up is taxable to the employee, and therefore subject to withholding and payroll tax, it is required that the gross-up be 'grossed-up' to assist the employee with additional taxes. To provide an unscientific example: if an employee is promised $1,000 for expenses, the total benefit may equate to $1,500 to assist with the potential tax burden created by the additional of taxable relocation expenses to income.

Learn more about relocation and taxes in our free article.

How Is Tax Gross-Up Calculated?

Flat Method
A flat percentage calculated on taxable expenses and added to income. While this method may be the easiest for the company, it is not compliant  with IRS regulations, and it is likely the employee will be liable for additional taxes on the added flat gross-up percentage because this is also considered a taxable benefit.

Supplemental/Inverse Method
Although perceived as a bit more complex than the flat method, this method incorporates the tax on tax calculation, which is IRS compliant and gives the employee the added tax assistance on the gross-up that the IRS considers a taxable benefit. Some companies choose to use the IRS supplemental rate (currently 25%) for all employees regardless of income level.

Marginal/Inverse Method
This method is typically handled by a CPA or full-service relocation companies and also incorporates the tax on tax calculation. The difference is that the marginal methodology takes into account employee income and IRS Form 1040 tax filing status. In most cases policy dictates that only company-earned income will be considered and other forms of income, such as spousal income or investment income, won't be taken into account.

Inverse Example: Transferee is paid $1,000 and has a total tax rate of 34% (federal, state, OASDI, Medicare). The gross-up amount is determined by taking 1 minus the tax rate and dividing the taxable expenses by that amount.
1 - .35 = .65
1000 / .65 = $1,538.46 (total benefit to the employee)
$1,538.46 (total benefit) - $1,000 (taxable expense) = $538.46 inverse gross-up amount

Mishandling Tax Gross-Up

When done properly, a tax gross-up can reduce the tax burden on a transferee and offer consistency in records and paperwork to better prepare both the employee and employer for tax filing. That said, if not done correctly, a relocation tax gross-up can result in the following problems:

  • Extra work and time (read: increased company expenses) as well as frustration for your accounting and HR departments as they need to take the time and effort to go back into their records to recalculate and correct mistakes and possibly issue W-2C forms.
  • Failing to offer a tax gross-up for relocation expenses or miscalculating a gross-up can diminish employee morale from being unfairly taxed, resulting in lowered productivity and retention rates.
  • An incorrectly filed tax gross-up may result in an employee having to request an extension for filing a tax return, creating filing delays which could carry penalties.
  • In some cases, the employee may even have to go to the trouble of filing an amended tax return as a result of incorrect W-2 statements.
  • A possible audit and /or tax penalties and other fines, perhaps for your transferee as well as the company.

The IRS has several publications concerning tax consequences of moving expenses, including the gross-up concept, in their Publication 521 "Moving Expenses" and Publication 523 "Selling Your Home." Both are recommended reading for transferees planning a job-related relocation move.

 

Reloc

 

Although this written communication may address tax issues, it is not a covered opinion as described in Circular 230.  Therefore, to ensure compliance with requirements imposed by the IRS, we inform you that any tax advice contained in this communication (including any attachments), unless expressly stated otherwise, was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any tax-related matter(s) addressed herein.

Topics: calculating tax gross up

How To Calculate Tax Gross-Up for Relocations

Posted by Shirien Elamawy on Tue, Feb 03, 2015

Relocation tax gross up defined:

When an employee receives a one-time tax relocation incentive or reimbursement of taxable relocation costs and the company adds to the reimbursement amount, a tax gross up occurs. Reimbursing transferred employees is good corporate relocation policy as it improves employee retention and productivity while helping maintain good customer/employee relations and management.

tax-calculator

Free All-Inclusive Guide  Relocation and U.S Taxes

How is tax gross up calculated?

  • Simple Gross Up – A flat percentage calculated on the taxable expenses and then added to the income. While this method may be more convenient for the company, the employee may be liable for additional taxes on the added percentage. Example: $15000 (taxable expenses) multiplied by 28% (fixed gross up) equals $4,200 gross up, taxable to the employee.
  • Inverse method – Although a bit more complex than the simple method, as a tax-on-tax method, this is also more accurate and results in less tax burden for the employee, as well as allows immediate tax reporting.  You would add up all the tax rates (fed, state, OASDI, SS).  Then divide the taxable expense by the sum of the tax rates.  Take this number and subtract the taxable expense.  This gives you the gross up amount.

 

Example: Say the transferee is paid $1,000 and has a total tax rate of 35% (federal, state, OASDI and Medicare).  Take the tax rate (.35) and divide this by (1 - .35).  This gives you the gross up percentage to cover not only the .35 tax rate, but the additional taxes incurred by paying the gross up.  .35/.65 = 54%.  54% of $1,000 = $540, so the transferee is paid $1,540 total.

  • True-Up method – This last method is best used by CPAs or other accounting professionals, including full-service relocation companies or experienced logistics services, to determine the most accurate and fair tax gross up. Calculations are done at the time of incurred expenses and again at year’s end before reporting earnings on the employee’s W-2.

Should your company handle relocation tax itself or give the job to a pro?

Many corporate accounting and finance departments, while adept at handling day-to-day corporate financial operations and record-keeping, may miss the mark when it comes to accurately and fairly figuring tax gross up. Due to the complexity of tax laws and other local, state and federal regulations, turning the work over to a full-service relocation company is often the best bet.

The consequences of miscalculating or ignoring tax gross up:

  • Extra work and time (read: increased company expenses) as well as frustration for your accounting and HR departments as they need to recalculate and correct mistakes and possible issue corrected W-2 forms (W-2C).
  • A possible audit and /or tax penalties and other fines.
  • Diminished employee morale from being unfairly taxed, resulting in lowered productivity and retention rates.

The take-away:

Working with an experienced relocation company who can efficiently handle all aspects of a transfer is one of the surest ways to eliminate tax errors and omissions. Among its many services, a good relocation services provider will track expenses and submit accurate reports of taxable and non-taxable costs as well as help calculate tax gross up. As one of your preferred suppliers, a trusted professional relocation full-service company can give you and your transferees’ peace of mind – along with a lower tax bill.

 

Free All-Inclusive Guide  Relocation and U.S Taxes

Although this written communication may address tax issues, it is not a covered opinion as described in Circular 230.  Therefore, to ensure compliance with requirements imposed by the IRS, we inform you that any tax advice contained in this communication (including any attachments), unless expressly stated otherwise, was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any tax-related matter(s) addressed herein.

Topics: calculating tax gross up

How Payroll Correctly Handles Relocation on W-2 Forms

Posted by Nicole Overholt on Tue, Nov 26, 2013

tax_money.jpgEmployee relocations can have their fair share of tax implications. No other circumstance is quite as worrisome to the employee as the impact that can come about from receiving a lump sum payment to cover their moving expenses. These kinds of lump sum payments are taxable.

Download our free Relocation and U.S. Taxes guide for more helpful information on relocation and taxes.

Minimizing Impact with the Tax Gross-Up

Companies footing the bill for an employee relocation often provide the added benefit of “tax gross-up.” This is done in order to minimize the financial burden that an employee can face when it comes time to file their tax returns. Since lump sum payments for moving expenses are considered taxable income, the tax gross-up is designed to assist in the tax burden caused by the additional taxable relocation costs. Here is how it works:

  • Payout for the employee’s moving expenses is determined.
  • An additional 40 to 70 percent is added to the moving expense amount.
  • When the relocated employee receives his or her W-2 form at the end of the year, the moving expense will reflect the higher amount.
  • After the expense is taxed, the amount of money the employee will have retained should be equal to the originally determined moving expense.

Expenses that Aren’t Reported as Taxable Income

Not every cent that an employer contributes for a relocation impacts the employee from a tax perspective. Taxes apply to the aforementioned lump sum payments, where a company gives the employee a check to use to pay for all of their moving expenses. This can be circumvented if the company is willing to make payment directly for household goods moving expenses. Many times, companies opt for this as a way to minimize stress for the transferee and to simplify tax considerations.

Not all companies offer to do a tax gross-up when it comes to paying for an employee’s moving expenses. For the most part, tax gross-ups are done as a courtesy to minimize impact on the employee – whether that impact is financial, emotional, or otherwise. Transferred employees who find themselves having to dig deep into their own pockets to offset the 40 to 45 percent tax rate imposed on the receipt of lump sum moving expense payments are not often happy employees. Logically, this can have negative consequences when it comes to work productivity, job performance, and seamless assimilation into their new surroundings. Companies whose principal goal in employee relocation is to provide for a smooth transition should consider the above mentioned options carefully – and work closely with their payroll and accounting departments to ensure that no errors are made in filing year-end tax paperwork.

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Although this written communication may address tax issues, it is not a covered opinion as described in Circular 230.  Therefore, to ensure compliance with requirements imposed by the IRS, we inform you that any tax advice contained in this communication (including any attachments), unless expressly stated otherwise, was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any tax-related matter(s) addressed herein.

Image courtesy of ddpavumba at FreeDigitalPhotos.net

Topics: tax impact of relocation, Corporate Relocation Costs, calculating tax gross up

The Payroll Tax Impact of Relocation Expenses

Posted by Nicole Overholt on Tue, Nov 12, 2013

taxes.jpg

Paul S., a regional sales manager, had exceeded his sales goals for five consecutive years. When the vice president of sales called him into his office, Paul was surprised to learn his boss wanted him to consider relocating to an under-performing sales territory in the Midwest. Paul's first thoughts were of the many changes – known and unknown – that relocation would bring to him and his family. The impact of relocating on his Federal income taxes was the furthest thing from his mind.

A relocation can bring shock and dismay the following January when W-2 forms are mailed. Your transferee may not have realized many of the relocation expenses your company paid would count as taxable wages. Furthermore, your company will be obligated to remit payroll taxes on those wages.

To prevent unwelcome surprises, a thorough discussion of tax issues should take place during the pre-decision period along with other provisions of your corporate relocation policy.

The IRS allows employees to deduct specific costs of relocating. These specific costs become excludable from income if paid for by the company. These include:

  • Transportation of household goods and personal effects
  • Storage of same for up to 30 days
  • Travel (including en route lodging) from the old home to new location, but excluding meals
  • Out of pocket expenses for gasoline, or mileage at the current IRS rate, parking and tolls.

How your company structures its relocation policy affects the taxes you will pay

Your relocation policy may reimburse transferees for the deductible expenses noted above, and also pay a lump sum relocation allowance to cover non-deductible expenses or provide reimbursement of these expenses. In this case the allowance or non-deductible reimbursements are treated as wages on the W-2, and the company is responsible for withholding and paying all relevant taxes: Federal, State, Medicare, Social Security, etc.

For example, the total cost of relocation in this example is $20,000. Of this, the company would report $3,000 as taxable wages.

Item

Cost

Tax Treatment

Shipment of Household goods

$15,000.00

Excludable; no payroll tax withholding or gross-up assistance required

Travel to new location

$2,000.00

Excludable; no payroll tax withholding or gross-up assistance required

Temporary living expenses at new location (e.g., extended stay hotel)

$3,000.00

Not deductible (taxable); treated as wages; must be taxed

Grossing Up

“Grossing up” adds money to the allowance beyond the “usual” amount to minimize tax consequences for the transferee. Calculations to determine the additional amount can be done in several ways (see here for details), all of which attempt to avoid under- or over-compensating the transferee.

Grossing up a relocation allowance or taxable reimbursements clearly helps the transferee. It also helps your company in the long run: Over half of prospective transferees in mid-sized and large companies declined relocation in recent years as reported by Atlas Van Lines 2015 Corporate Relocation Survey. Grossing up adds an attractive incentive to relocate.

Impact on Your Corporate Tax Return

When your company pays the excludable expenses to a 3rd party or the transferee and doesn’t provide a lump sum for all expenses, you minimize your tax obligations and avoid incurring additional and unnecessary income tax costs.

Structuring your relocation policy to minimize tax obligations is one of many considerations you'll need to make in creating a policy that reflects your overall corporate goals and values.

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Although this written communication may address tax issues, it is not a covered opinion as described in Circular 230.  Therefore, to ensure compliance with requirements imposed by the IRS, we inform you that any tax advice contained in this communication (including any attachments), unless expressly stated otherwise, was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any tax-related matter(s) addressed herein.

Topics: tax impact of relocation, Corporate Relocation Costs, calculating tax gross up

Relocation Misunderstandings Lead to Popular Myths

Posted by Nicole Overholt on Tue, Aug 06, 2013

Numerous myths surround corporate relocation policies. Most are based on simple misunderstanding of situations, but these issues can creep into formal policies without the creators realizing they are perpetuating the myths. Consider the following common myths--and address them in your policy.

Popular Myths

  • Temporary housing charges paid directly to corporate housing firms are not taxable for the transferee.

    IRS regulations have changed over the years creating this common misunderstanding by both transferees and employers. Always stay current with tax regulations and changes that sometimes come at a furious pace. If your HR or accounting department find this challenging, consult with your tax advisor or public accounting firm.
  • Reimbursed household goods moving and final move expenses are deductible by transferees.

    These reimbursements must be documented properly to classify as "excludable" from income.
  • Moving household goods and other moving expenses are added to transferee earnings and appear on his or her W-2.

  • Home selling assistance is taxable if the relocation does not satisfy the 50-mile IRS test.

    Interestingly, home sale assistance has its own set of IRS rules. Employers can still qualify for deductibility and transferees can receive tax benefits even if the relocation does not meet minimum mileage test rules.
  • Taxable relocation benefits are reported as transferee income in the new destination jurisdiction.

    Since individuals are on a cash basis accounting system, non-excludable relocation benefits are taxable as of the date the payments were made. Reimbursing transferees prior to final move relocation and beginning work at the new location are taxable in their current--soon to be prior--state.
  • Home buying assistance including points and prepaid interest paid by the employer are deductible by transferees without any tax withholding necessities.

    In most states, mortgage points and other prepaid interest are deductible when someone buys a home. Some employers misunderstand IRS regulations and withhold social security and Medicare taxes only. This misunderstanding can result in employer under-withholding penalties and interest. Further, some companies and rookie tax preparers mistakenly assume that, since the points were paid by employers, transferees cannot deduct them on their federal 1040, Schedule A. This is another myth as the transferee can still deduct up front points if they qualify under prevailing IRS regulations.

These are but some of the most popular myths surrounding corporate relocation policies that may cost employers and transferees unnecessarily wasted money in additional taxes and/or IRS penalties. Misunderstandings such as these can generate extra costs and increased IRS scrutiny for both employer and transferee.

How an Incorrect  Tax Gross Up Affects  Your HR Department
Just as avoiding misunderstanding demands clarity of communication, whether oral or written, these expensive myths require understanding of the prevailing regulations and clear statements in relocation policies. The changing nature of IRS regulations challenge anyone from making "cast in stone" statements of fact regarding what is and is not taxable to transferees or employers.

The best advice is for employers and their HR departments to evaluate relocation policies regularly to ensure the language and benefits fit current regulations to avoid expensive errors. However precise your relocation policy language may be, if it references outdated information or regulations, your program could be in violation, costing transferees and the employer dearly.

Topics: Home Selling and Purchase Assistance, tax impact of relocation, calculating tax gross up

How to Calculate a Tax Gross Up On a Lease Payment

Posted by Nicole Overholt on Wed, Apr 17, 2013

If your corporate relocation program includes monetary help for transferees who rent or lease their residence, a gross up feature that mitigates income tax consequences for relocating employees is a welcome benefit. Prospective transferees in the middle of an active lease will be particularly grateful; at least until they learn that reimbursement to buy-out their remaining lease costs may increase their income tax liability.

Free All-Inclusive Guide  Relocation and U.S Taxes

Relocation program expenses that are not excludable from income (non-taxable) increase transferees' income, making these reimbursements subject to tax withholding. To avoid negative perceptions and eliminate some of the natural stress that accompanies relocation, tax gross up features help attract new talent and keep already high performing employees.

Three Methods to Gross Up Lease Payments

Whether you administer your relocation program internally using your HR department personnel or partner with a top relocation management company (RMC), you'll typically have three options to include a gross up component to help assist with potential tax consequences for your relocated employees.

  1. Simple Gross Up.

    Employers select a flat percentage to add to the direct cost of lease payments offered as help to transferees. This is the simplest method to mitigate potential income tax consequences. However, this technique, while easy to administer, may not help the transferee avoid all potential income tax increases.
  2. The Inverse Method.

    This method can be HR friendly but also ensures the tax assistance benefit is appropriately accounted for and grossed up (tax on tax or gross-up on gross-up).
  3. The True Up Method.

     This method “grosses up the gross up" but also takes into account employee income and filing status to arrive at a more accurate tax rate for each employee. Consider using a tax professional, such as a CPA, tax attorney or RMC, to effectively implement this method.
How an Incorrect  Tax Gross Up Affects  Your HR Department
These three methods can be used for all taxable reimbursed expenses, in addition to lease payments, that generate increased tax liabilities for transferred employees. The techniques herein described, particularly the Inverse and True Up methods, will help you attract new talent and retain historically top performing employees.

Topics: tax impact of relocation, Corporate Relocation Costs, calculating tax gross up

Benefits of Including Gross-Up in your Relocation Plan

Posted by Nicole Overholt on Wed, Apr 03, 2013

tax-calculator.jpgThe more generous and competitive your corporate relocation program, the more likely your transferees may incur a greater tax burden for reimbursed expenses the IRS considers taxable. Your HR department staff can also experience frustration when addressing this often confusing issue.

Gross-up is a commonly misunderstood feature of strong relocation programs. Gross-up methods often depend on the menu of relocation services you offer. 

Find out more about tax gross-up in our free Relocation and U.S. Taxes guide.

Gross-Up

Development of a gross-up policy should be given careful consideration, taking into account benefits offered and company culture.  Some policies are designed to provide basic assistance while others are designed to avoid all or most potential tax consequences of reimbursing relocation expenses.

To avoid overwhelming your HR personnel, it is often prudent to retain a professional third-party relocation firm to track and categorize reimbursed expenses, some of which can generate added income tax consequences for the transferee. These administrative duties can challenge even the most experienced HR veterans, who already have full workloads.

History indicates that, because of changing tax laws and many variations of calculations, most employers benefit from having relocation or tax professionals perform or outline gross-up issues. The benefits of including gross-up features in your relocation plan are numerous and the downsides negligible.

Gross-Up Benefits

  • Accurate gross-up calculations help offset the projected income tax increase with reimbursed relocation expenses.
    With a policy review and gross-up plan, employers may be able to maximize spend by replacing some taxable expense reimbursements with deductible (non-taxable) reimbursements, thus saving money on gross-up.

  • At least three options are available to calculate gross-up.
    Flat gross-up is HR friendly, but may not fully offset the transferee's tax obligations. The supplemental/inverse method can also be HR friendly but ensures the tax assistance benefit is appropriately accounted for and grossed up (tax on tax or gross-up on gross-up). The marginal/inverse method is the more generous technique for calculating gross up amounts. This method “grosses up the gross up" but also takes into account employee income and filing status to arrive at a more accurate tax rate for each employee.

  • Gross-up alleviates a major stress point for relocating new hires and current employees.
    There are numerous stress components involved in a relocation, particularly if the transferee must move a family. Eliminating some of the potential tax burden relieves one of the primary stress activators present in a relocation.

  • Employers can tailor gross-up calculations to better align with the transferee's marginal tax rate based on compensation level.
    Even if you offer only a single relocation program, treating all transferees equally, you can still customize your gross-up calculations to match transferees' different compensation and tax rate levels.

  • Including gross-up features helps attract new talent and reduces turnover of current staff.
    Knowledgeable employees know that not all moving expenses in relocation programs are tax-free. Including gross-up features help you attract better employees and keep current high-performing staff involved in relocation.

In the absence of a gross-up feature, employers are required to withhold on taxable relocation expenses, which puts the tax burden on the transferee. 

While gross-up features will increase the cost of your relocation program, including this component recognizes that you're in competition with other employers for the best available talent. Also, removing as many stress-inducing factors in a relocation is always beneficial.

Working with a top relocation management company (RMC) alleviates stress levels on your HR personnel. Senior management also benefits by not expecting HR staff to become relocation tax experts. Management, able to concentrate on strategy and operations, typically become more productive as they are able to focus on core job responsibilities.

Free All-Inclusive Guide  Relocation and U.S Taxes

Topics: tax impact of relocation, calculating tax gross up

3 Ways to Calculate Tax Gross Up

Posted by Nicole Overholt on Fri, Feb 10, 2012

Tax gross up can add considerable costs to corporate relocation packages. Tax gross up can increase taxable relocation costs by 45% to 55%or more.

Free All-Inclusive Guide  Relocation and U.S Taxes

What is tax gross up, in a nutshell, and why does it cost your company money? Tax gross up occurs when you add to the taxable reimbursement amount so that relocating employees don't face a tax liability after receiving one-time relocation incentives or reimbursement of their taxable relocation costs. It's standard practice to offer tax gross up, as it adds to employee satisfaction, makes a move easier on relocating employees, and can provide added incentive for employees on the fence to make the decision to relocate.

Calculating Tax Gross Up
You can calculate tax gross up in three ways.

  1. Simple Gross Up: A simple gross up simply adds a percentage to the reimbursement costs based on the employee's tax bracket or another figure. Since this additional percentage is also taxed, however, it could still result in a tax liability for the employee.
  2. The Inverse Method: This is a more accurate, albeit slightly more complicated, method to calculate tax gross up. Begin with the number one and subtract the tax rate, then add that percentage to relocation costs. This compensates for the tax on the gross up, but is not 100% accurate.
  3. The True Up Method: Performed by a CPA or a relocation management company, this tax gross up calculation provides the most accurate results.

 

How an Incorrect  Tax Gross Up Affects  Your HR Department

 

While tax gross up adds to your corporate relocation costs, it results in a more fair corporate relocation package, happier employees, and better retention rates.

Topics: tax impact of relocation, Corporate Relocation Costs, calculating tax gross up, Buyer Value Option

What Can Happen If You Miscalculate Tax Gross Up?

Posted by Nicole Overholt on Wed, Feb 01, 2012

Your accounting departments are well-versed in day-to-day financial management. They know how to file your quarterly taxes accurately, keep careful records, and do their jobs well. But tax gross up during corporate relocation may be another story.

Tax Gross Up is a very important aspect of a relocation

Handling relocation tax is not something many accounting professionals do every day, and navigating the confusing maze of relocation tax laws and properly calculating tax gross up often requires help from outside professionals.

If your company completely ignores tax gross up or calculates inaccurate gross-ups, the result could be a tax burden for your employees, which can diminish morale, create stress that can take away from their job performance, and even result in lower retention rates.

Free All-Inclusive Guide  Relocation and U.S Taxes

On the other hand, if you miscalculate tax gross up, the consequences may be even worse. An inaccurate tax gross up can lead to:

  • Unhappy transferees if they need to file for a tax extension due to incorrect W-2 forms
  • A frustrated HR department
  • Loss of productivity in the accounting departments as they backtrack to figure out the errors
  • An audit

Properly calculated tax gross up helps alleviate relocation tax for employees, keeps paperwork consistent, and will help ensure on-time tax return preparation for your relocated employees.


Tax gross up assistance is just one of the many aspects to Capital Relocation Services' six-step low-stress relocation process, which helps create consistent relocation policies for happier employees and HR departments.

Topics: tax impact of relocation, calculating tax gross up, relocation taxes

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