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.
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.
When done properly, a tax gross-up can reduce the tax burden on a transferred employee 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 tax gross-up for relocation expenses or miscalculated gross-ups can add undue stress and financial burden, diminishing employee morale and productivity and compromising retention.
- Incorrect tax gross-ups may also 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.
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.