CapRelo Blog

Which Relocation Expenses Can Be Excluded from Income Tax?

Posted by Amy Mergler on Fri, Mar 10, 2017

TaxesRegardless of the distance or time of year, relocating for a job is an expensive undertaking. Fortunately, many employers have relocation packages in place that reimburse employees for some, or all, of their moving expenses. Some relocation expenses are excludable from income tax, while others are considered additional taxable income by the IRS.

Learn more about relocation and U.S. taxes in our free guide.

Excluded Moving Expenses

Qualified relocation expenses are not included in an employee’s income. They are paid directly to the employee or to third parties. Excludable expenses paid directly to the employee are noted on the employee’s W-2 form in box 12, while payments made directly to third parties on the employee’s behalf need not be reported on their W-2.

Excludable moving expenses typically fall into two primary categories, household goods and final move expenses. Below are some common costs related to these two categories.

Moving Household Goods

  • Packing and unpacking household goods at the original and new residences
  • Disconnecting, then reconnecting utilities for each home
  • Transporting pets from the original residence to the new location
  • Packing, crating and boxing supplies
  • Transporting personal vehicles to the new location
  • Storage expenses, usually for 30 to 90 days (depending on the policy and individual circumstances)
  • Insurance on the household goods

Final Move Expenses

  • Transportation expenses to physically move the employee and his/her family to the new residence
  • In-transit lodging for the family
  • Mileage expenses for employees traveling by car, but only the first $0.19 per mile in 2017 (varies each year) is excludable from income

To be excludable from income, the employee should take the most direct route to the news home.

Where to Find Information on Excludable Relocation Expenses

Visit the IRS website to find the most up-to-date information on excludable relocation expenses. Specific information on relocation expenses is outlined in IRS Publication 521, Moving Expenses.

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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, relocation expense reimbursement, employee relocation expenses, relocation taxes, employee relocation

December Relocation Survey

Posted by Amy Mergler on Thu, Dec 15, 2016

Thinking about changing your relocation program or just curious about what other organizations are doing? Each month, we'll feature a short survey and share our findings along with the next survey the following month. Below are the results for last month's survey and this month's survey questions.

November Survey Results

1. Does your company offer a lump-sum package for global relocations?

67% of respondents do provide lump-sum packages. 33 % do not or are unaware of the program parameters.

2. What type of lump sum relocation packages do you offer?

33% of repondents provide alternative (partial) lump sum. Another 33% provide managed lump sum. And 34% provide other types of packages.

3. What are your motivations for using a lump-sum program?

33% of respondents were motivated by cost control. 34% were motivated by ease of administration. The remaining respondents were unaware of their companies' motivations for choosing lump-sum packages. 

 

As the New Year approaches and companies start preparing records for the upcoming tax season, this month's survey focuses on relocation and taxes.  

Create your own user feedback survey

Topics: tax impact of relocation, relocation taxes, global relocation

Claiming Tax-Deductible Relocation Expenses

Posted by Amy Mergler on Tue, Apr 12, 2016

Tax_Forms.jpgMany potential transferees find that they must turn down an otherwise lucrative job transfer due to the high cost of moving. Some employers choose to underwrite everything from helping an employee list and sell their current home, to handling all transfer-related details – including movers and travel – although not all expenses may be covered or reimbursed. This is where tax deductions come in very handy, enough so that they may make the difference between an employee enthusiastically accepting a transfer offer or turning one down.

For more information on Relocation and U.S. Taxes, download our free guide.

One important note: only those qualified expenses not directly reimbursed by the employer may be deducted. Any reimbursed expenses or those paid directly to a vendor, such as a moving van company, are not deductible but usually are excluded as income. It is helpful for your company to provide this type of relevant tax information to the employee to assist them during tax filing season.

A professional relocation company should be able to guide transferees and employers through the process of determining deductibility.

An employee must meet three basic IRS requirements to consider deducting relocation expenses:

1. Starting Dates to Moving Dates

The IRS permits the deduction of qualified expenses incurred within one year from the time of actually starting work at the new location. Any moving expenses must occur within a year of the starting date to qualify as deductible.

2. Distance from Home and Work

According to the IRS, a new main job location must be at least 50 miles farther from the old home than the former job location was for the old home.

3. Length of Time Worked at Current (or New) Job

The IRS stipulates that employees "must have worked full time for at least 39 weeks during the first 12 months immediately following arrival in the general area of the new job location. If self-employed, the claimant must work full-time for at least 39 weeks during the first 12 months and for a total of at least 78 weeks during the first 24 months immediately following arrival in the general area of the new job location."
 

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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 everydayplus at FreeDigitalPhotos.net

Topics: tax impact of relocation, relocation taxes

Relocation and Taxes: What Are the Employer's Responsibilities?

Posted by Amy Mergler on Thu, Mar 24, 2016

accounting-resized-600.jpgPayment or Reimbursement for Moving Expenses

Any employer-paid reimbursements or payments of an employee's job-related moving expenses are considered income for the employee only to the extent that he or she would not be able to deduct them as expenses. If expenses meet the eligibility requirements under the IRS Code Section 217 and an accounting of expenses are furnished by the employee to his or her employer and any excess of payments or advances over actual expenses are returned, then those amounts are excluded from an employee's income.

For more information on Relocation and U.S. Taxes, download our free guide. 

Employer Deductions

If a company helps the transferee sell his or her home, or buys it outright, that company may also recognize tax savings. It is best to consult with a licensed real estate and tax expert in this area, as there are very strict regulations in place that allow the sale of the home to be recorded as a non-taxable event.

Payroll Taxes and Withholding

In the determination of liability, the employer is usually liable for collecting and paying withholding and payroll taxes on reimbursements of an employee's job-related moving expenses as well as other payouts considered income to the employee. The employer is not liable for the payroll taxes and withholding amounts excluded from an employee's income (such as deductible moving expenses) of if there is reason to believe that the employee can deduct a corresponding moving expense. ("Allowable" is understood to mean that it is a type of deduction that would normally be allowable if a hypothetical employee met all of the criteria for the deduction, not necessarily that a particular employee will in fact take the deduction.)

Tax Forms and Other Records

Employers are no longer required to provide transferred employees with the IRS Moving Expense Form 4782; however, it is still a good idea to provide an itemized listing of all reimbursements made for moving expenses. It would be even more helpful to include reference to other necessary forms as well as other assistance provided in a tax packet, including Moving Expenses Form 3903, which employees must attach to their 1040 tax forms.

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: tax impact of relocation, relocation taxes

IRS Initiates Policy Changes Regarding Tax Reporting for Expats Living Abroad

Posted by Amy Mergler on Thu, Feb 11, 2016

taxes.jpgMoving and living abroad can result in complicated situations—especially where finances are concerned. For the estimated 335,000 expat U.S. citizens who earn an income overseas, it can be even more complicated than for other nationalities, since the United States is the only country that requires its citizens to file overseas income taxes on peril of losing citizenship.

The Foreign Account Tax Compliance Act

In 2010, the Foreign Account Tax Compliance Act (FACTA) was created in order to flush out tax evaders who failed to declare overseas income or capital. According to the IRS, U.S. taxpayers who have signature authority or a financial interest over one or more overseas bank accounts must use Form 8938 to report these assets, and it should be attached to their annual income tax return (typically Form 1040). If the total value is below $50,000 at the end of the tax year, the taxpayer doesn’t have to report the income unless the value exceeded $75,000 at any time during the year. The threshold is higher in some cases and is different for married and single taxpayers. 

In addition to Form 8938, any United States taxpayer with financial interest or signature authority over at least one overseas financial account must file an FBAR form if the aggregate value of said accounts exceeds $10,000. It’s important to realize that the FACTA regulations also apply to U.S. expats who return to their homeland, but who still hold overseas bank or financial accounts. However taxpayers who aren’t required to file an income tax return for the tax year also aren’t required to complete Form 8938.

Additionally, the FACTA reporting obligation also affects taxpaying expats from other countries who are living in the United States. Many immigrants have bank accounts in their homeland, even if they don’t use them after moving to the U.S. As of this year, they need to review their accounts and determine whether they need to be reported. 

Penalties for not complying with the FACTA regulations are severe. The penalty for failure to file Form 8938 is up to $10,000 for failure to disclose, plus an additional $10,000 for each 30 days of non-filing after the taxpayer receives the IRS notice of failure to disclose (max. $60,000). In some cases the IRS may impose criminal penalties as well.  For non-willful failure to file FBAR, the penalty is up to $10,000. If willful, the penalty is up to $100,000 or 50%, whichever is greater, and criminal penalties can also apply.

What makes this so relevant now is that as of this year, the IRS has more stringent methods to enforce these regulations. It has formed alliances with over 100 countries, establishing a requirement for financial institutions in those countries to report any accounts belonging to U.S. citizens, U.S green card holders and U.S. expats.

And that brings us to the other aspect of this situation that makes life for U.S. expats difficult. If a bank fails to report even one single person, the U.S. Department of Treasury could fine the institution as much as 30 percent of its U.S. income. This means that U.S. citizens are high-risk customers, and many banks and other financial institutions around the world are reluctant or unwilling to work with them.

Corporate Relocation Companies Can Help

Fortunately, experienced corporate relocation companies like CapRelo can be of assistance to U.S. expats moving and living abroad. Corporate relocation companies often have a network of banks, lenders and other financial institutions that possess the infrastructure and knowledge to work with U.S. customers. In addition, they can assist in finding international tax specialists who can help ensure expats meet all of their tax reporting obligations.

In conclusion, FACTA certainly makes financial matters more complicated for those living abroad. But by being aware of the reporting requirement and knowing how to find the right kind of help, expats can still have a valuable, enjoyable overseas experience.

 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: tax impact of relocation, relocation taxes, expats

Tax Considerations for Relocating Canadian Employees to the U.S.

Posted by Amy Mergler on Thu, Feb 04, 2016

global_mobility.jpeg

In today’s labor market, talent mobility is becoming increasingly important. First, there’s a growing necessity for companies to function at a global level. Thanks to continuously improving communications technology, organizations are collaborating with partners and breaking into markets overseas. As a result, there are more relocation opportunities for employees to gain international experience.

Second, millennials – who’ve grown up in this hyperconnected world – expect to be given opportunities to work overseas. Whereas international assignments used to be reserved for highly experienced employees, nowadays, international transferees are often at the beginning of their careers. And though they’re likely to possess fewer assets than more seasoned employees, it’s nevertheless critical to be aware of the tax implications of relocating to a different country.

This is especially important for Canadian employees relocating to the United States. Both countries have a number of tax laws that can have a significant impact on the amount of taxes an employee has to pay on income and assets. In some cases, employees might even be subject to double taxation. That’s why it’s imperative that employers work with their employees to determine the best course of action ahead of time.

Keep the following considerations in mind:

  1. Tax residency. Canada levies income tax based on residency, so employees who retain their primary residency in Canada are likely to have to pay income taxes. The U.S., however, levies taxes on a citizen’s or resident’s worldwide income. The complication here is that the U.S. might consider someone a permanent resident based on the substantial presence test (SPT). This means it’s possible that an employee could be subject to double taxation, which can be extremely costly—even when you keep in mind that U.S. taxes are typically much lower than Canadian ones.
  2. Departure tax.When an employee leaves Canada and takes up permanent residency in the U.S., or when the SPT deems that employee to be a permanent resident of the U.S., he or she is no longer subject to income tax in Canada. However, assets the employee retains in Canada will still be taxed. These assets include: dividends, annuity payments, royalties and rental payments, amongst others. Real estate and registered retirement savings plans are exempt.
  3. U.S. estate tax. If an employee becomes a permanent resident of the U.S., he or she is subject to U.S. estate tax, which is levied on all of a resident’s worldwide assets if they amount to more than 5.43 million U.S. dollars and their assets in the U.S. if they’re valued at a minimum of $60,000 U.S. dollars. Again, if the employee retains assets in Canada, this could result in a double taxation situation.

It’s clear that when tax time rolls around, transferees could face complicated and expensive situations that could very well affect their engagement with their employer. To prevent this and ensure companies retain their people, employers are advised to provide proper assistance in terms of accounting and estate planning to all of their transferees.

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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, relocation taxes, global mobility, international relocation

How Does Relocation Assistance Affect Taxes?

Posted by Jim Retzer on Tue, Feb 10, 2015

 

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Topics: tax impact of relocation, relocation taxes

What Does a Relocation BVO Program Entail?

Posted by Barbara Miller on Thu, Jan 24, 2013

house1.jpgA Buyer Value Option (BVO) program for your relocating employee can have several benefits for both your company and your employee.

For your employee, it provides peace of mind, both financially and otherwise. It also allows him or her to concentrate on moving and successfully acclimating to the new work environment.

For more information on real estate considerations for your executive relocation policy, read our free article. 

On your end, a BVO program ensures you get maximum value and productivity from your employee in the shortest amount of time upon relocation. Even more importantly, this type of seller assistance program can massively increase your employee's loyalty and productivity in the long run.

How Does a BVO Program Work?

There are several moving parts to a BVO program. While your company (or likely your relocation company) handles the closing of the property the employee is responsible to list the home up for sale and obtain a bona fide offer.

This doesn't mean that you and your business are left out of the process. In fact, many companies help their employees find a real estate listing agent. Unlike an Appraised Value Offer program, there are no appraisals of the home to determine its fair market value. Instead, the value of the home is determined by the bona fide offer from a prospective purchaser.

Once the contract terms are negotiated, your company - instead of the buyer - purchases the property, and sells it to the buyer. (If you use a relocation management company, they will buy the property on your behalf instead.) If the steps are handled properly and in accordance with IRS guidelines, a benefit of this for your employee is that he or she won't need to report any sales expenses associated with the sale as earned income since there are no reimbursements from the company to the employee. Instead, closing costs and other related fees are paid by you (or by the employee relocation company). This is more than just a pass-through - your company must actually own the home, then sell it to the original interested buyer.

As you might guess, there is some degree of risk involved - but the closing occurs a vast majority of the time. One benefit of this method is the immediate productivity you will secure when your employee can settle into their new position without having to worry about a home sale. This is also an effective way to make sure the employee stays in his or her new position, and doesn't leave due to failure to sell their home.

Finally, it's also a great way to secure employee loyalty, which can have huge real-dollar benefits for your business in the future. Add up all these benefits and you'll see why many so many businesses are still utilizing BVO programs inside of their relocation packages - even given the risks involved.

It's also possible to gain all of the above-listed benefits with none of the risks. An employee relocation company can take care of the entire process for you.

In fact, an employee relocation service can usually take care of it better than most HR departments. They have the knowledge, experience, and connections to make it happen more quickly and work more fluidly than anyone who isn't involved in the relocation business.

Free All-Inclusive Guide  Relocation and U.S Taxes

 

Topics: corporate relocation program, relocation taxes, Real Estate, Buyer Value Option

How does relocation assistance affect taxes?

Posted by Nicole Overholt on Tue, Dec 18, 2012

never_too_early_to_prep_for_tax_season-1.jpgWhat are your tax responsibilities when it comes to offering relocation assistance to your employees? What are their responsibilities?

As you might guess, these responsibilities differ somewhat. The following will provide you with a quick overview of how these can differ, and what you can and should do to assist your relocated employees.

Find out more about relocation and U.S. taxes in our free article.

The Difference Between Employee and Employer Taxes for Relocation Assistance

Keep in mind that taxes on relocation assistance will likely be different for you than they will be for your employees. For example, you may not pay any taxes on the costs of providing corporate housing to relocated employees. Your employees, however, usually will, as the IRS usually considers this to be a type of non-exempt employee compensation.

The same may apply to any monetary assistance you may offer. While many employees get away with never paying taxes on a relocation assistance package, other individuals have been made to count this assistance as income and pay federal taxes on it. This is especially true when the assistance is given up front. Their deductions instead came from moving-related expenses.

Relocation-Related Tax Deductible Costs for Employees

Employees can generally deduct the costs of the following when it comes to relocation:

  • Automobile-related expenses: Gas and tolls, plus mileage or the total cost of shipping
  • Lodging paid for in relation to the move
  • Costs of any other forms of personal transportation used (air fare, train fare, etc.)
  • Other transportation costs such as moving vans or pull-behinds
  • Disconnecting and reconnecting utilities (deposits, fees, etc.)
  • Disassembly & reassembly costs for certain items (such as outdoor pools, etc.)
  • Storage fees
  • Packing & unpacking fees including boxes and paid moving assistance

Other Employer Responsibilities

How much tax-related reporting assistance should you provide to your employees when they relocate? That decision is largely up to you. However, it's typically a good idea to help them with their move as much as is reasonably possible.

At one time, employers were required to provide relocated employees with the IRS Moving Expenses Form (4782). While you are no longer required to provide this form, it is a very good idea to provide every employee with an itemized list of any reimbursements you make for moving expenses.

Every employee will also have to attach a copy of Form 3903 to their 1040 tax return form in the spring. You can do each employee a real favor by providing them with a folder that includes these necessary forms, as well as an itemized list of all assistance you have provided.

Keep in mind, however, that each employee's taxes are his or her own responsibility. Unless you are in the tax business, you should refer them to a certified tax professional if they are unclear on any point concerning taxes!

You may also be able to gain tax assistance if you help an employee sell his or her home--or if you buy it outright! As this can vary widely from situation to situation, you should consult a licensed tax professional in the matter.

This will help your business as much as it helps your employees. This kind of above-and-beyond assistance increases employee loyalty and happiness, which makes your business a happier, more productive place to work.

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: tax impact of relocation, corporate relocation program, relocation taxes

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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