CapRelo Blog

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.



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


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

What Does the IRS Consider Deductible?

Posted by Brian D'Orazio on Tue, Mar 18, 2014

tax_time_puzzle.jpgBefore we start we must state that deductibility is only applicable when the expenses are paid out of pockets and are not reimbursed by the employer. When deductible expenses are reimbursed or paid direct to a vendor by a transferee’s employer they become excludable from income but are not deductible. Deducting a cost that was not actually out of pocket would constitute double dipping. If you have questions regarding your relocation program speak with your company before filing any paperwork.

One of the principal reasons why people turn down relocation packages offered to them by their employers is the all-important issue of cost. Moving is expensive. Although many companies offer relocation packages that cover associated costs of movers and travel, not every employee receives the same benefit. But there’s good news. The IRS allows you to deduct some moving expenses on your federal tax return. Not all expenses are allowed, but there are enough available deductions to make it an effort worth your while. Here’s a quick list of what the IRS considers deductible moving expenses.

  • Household goods moving costs. Allowable deductions include any money spent on packing, crating and transporting your belongings, automobiles and pets. Temporary storage costs are also applicable (up to 30 days).

  • Utility disconnect and reconnect fees.

  • Travel expenses. This includes airfare, bus fare or train fare. It also includes hotel stays during travel, but doesn’t include meals. Any entertainment you take in or restaurant visits you pay will have to come out of your own pocket. You’re also required to take the most direct route available, which means no extended layovers in vacation spots along the way will be deductible.

  • Car travel expenses. If you decide to do your own moving or drive your car, you can deduct a standard mileage rate of 23 cents per mile (in 2015). Or, if you’re especially good at keeping records and tracking receipts, you can deduct the actual cost of your car travel including gas costs. Tolls and parking fees can also be included. General maintenance and incidental car repair while moving isn’t deductible.

Moving Expenses Are an Above the Line Deduction

Here’s another thing many people aren’t aware of: your moving expenses are considered “above the line deductions.” In other words, the amount of money you spend on a move can be subtracted from your gross income, thus lowering your adjusted gross income when you file. Even better, above the line deductions can be taken even if you don’t itemize your deductions on your tax return.

Meeting the Requirements

In order to be able to claim moving expenses on your federal tax return, you have to meet three IRS Requirements.

  • Closely related in time. In most cases you can deduct expenses incurred within 1 year from the date you first reported to work at the new location as closely related in time to the start of work.  If you do not move within 1 year of your start date in the new location, you may not be able to deduct expenses.

  • The Distance Test. The IRS stipulates that your new home has to be “at least 50 miles farther from your old home than your old job location was from your old home.” If you’re moving for a new job, the location of that job has to be at least 50 miles away from your old home.

  • The Time Test. According to the IRS rules, “If you are an employee, you must work full-time for at least 39 weeks during the first 12 months immediately following your arrival in the general area of your new job location. If you are self-employed, you 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 your arrival in the general area of your new work location.” If you don't meet these criteria, you may not be able to deduct your moving expenses.

Get the Facts

For all of the specifics on claiming moving expenses on your federal tax return, read IRS Publication 521. Since allowances and restrictions may change from one year to the next, be sure that the form you read matches the year of your move.

Free Article:  A Guide to Developing  Relocation Policies

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Topics: tax impact of relocation

How Payroll Correctly Handles Relocation on W-2 Forms

Posted by Nicole Overholt on Tue, Nov 26, 2013

Employee 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.


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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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


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.



Tax Treatment

Shipment of Household goods


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

Travel to new location


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

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


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

The 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.

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.

Free All-Inclusive Guide  Relocation and U.S Taxes

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.

    Simple (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 "true up" 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 put 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.

How an Incorrect  Tax Gross Up Affects  Your HR Department
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.

Topics: tax impact of relocation, calculating tax gross up

How does relocation assistance affect taxes?

Posted by Nicole Overholt on Tue, Dec 18, 2012

What 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.

Free All-Inclusive Guide  Relocation and U.S Taxes

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 $0.10/mile driven 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.

How an Incorrect  Tax Gross Up Affects  Your HR Department

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.

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

How to Check which Expenses Can Be Excluded from Income Tax

Posted by Nicole Overholt on Tue, Dec 04, 2012

Moving is expensive, regardless of the distance or time of year someone relocates. Fortunately, many employers reimburse employees for some or all of their moving expenses. Some relocation expenses are excludable from income taxation, while others are considered extra taxable income by the IRS.

But, which are excludable and which are not? Many employers, wanting to avoid having their HR departments stay current with IRS moving expense rulings, outsource their employee relocations to top professional firms, to administer the review and tracking of taxable and non-taxable expense reimbursements.

Free All-Inclusive Guide  Relocation and U.S Taxes

Qualified 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 to the employee are noted on the employee's W-2 statement in box 12. Employers paying third parties directly on the employee's behalf for qualified moving expenses, such as payments to van lines, need not report these amounts at all on year-end W-2s.

Excludable moving expenses typically fall into two primary categories: Household goods and final move expenses. Common costs in these categories include the following items.

Moving Household Goods

    • Estimates of the value of household goods, including personal possessions
    • Packing and unpacking the goods at the former and new residence
    • Expense of disconnecting, then reconnecting utilities for each home
    • Pet transportation from  old residence to new residence
    • Cost of packing, crating and boxing supplies
    • Expense of transporting personal vehicles to the destination
    • Up to 30 days' storage expenses
    • Gratuities and tips given to moving personnel

Employees may be reimbursed for additional expenses necessary to transport their household goods. In most cases, these payments are not considered taxable income.

Expenses of Making the Final Move

Many costs of making the final move to the employee's new home are excludable from taxable income. Reimbursed expenses that are excludable from income include, but are not limited to

    • Transportation expenses to physically move the employee and his/her family to the new home
    • In transit lodging expenses for the family
    • Employer-paid auto expenses, for employees traveling by car, up to $0.23 per mile (rate varies each year and is dictated by the IRS)

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

Free Article:  A Guide to Developing  Relocation Policies

Finding Excludable Relocation Expense Information

For employees or HR personnel wishing to check whether certain reimbursed relocation expenses are non-taxable, go to the IRS website. The U.S. Congress can--and sometimes does--modify these rules on an annual basis. Specific information on relocation expenses is outlined in IRS Publication 521, Moving Expenses.

Topics: tax impact of relocation, Corporate Relocation Costs, corporate relocation program

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