At the end of 2017, Congress passed a new tax law that among other things, slashed the tax excludable status of many employee fringe benefits—effectively making those benefits more expensive. This includes the relocation tax deduction that under the old tax law, made relocation expenses associated with moving for a job, tax excludable. Under the new law, all moving expenses are taxable, and employers would be wise to revisit their relocation policies to see how they can contain relocation spend.
There are a number of different ways employers can do this. Here are 3 ways employers can control relocation expenses in the wake of the 2018 tax reform.
One way to control your company’s relocation expenses is to offer to pay for a home-finding trip in place of other benefits. In the past, many policies offered to cover 3 major benefits: household good moves, final travel, and storage. Under old tax law, all three of these benefits had preferential tax treatment. While household good moves and final destination travel are necessary for almost any move, storage is not always needed. So, some employers have decided to remove storage from their policy, and along with that, any temporary housing benefits. Instead, employers are offering to pay for travel and a few nights at a hotel to find an apartment or house before their employee moves.
By removing these two benefits from the policy and including a home-finding trip instead, it encourages employees to plan ahead as much as possible to ensure they can have their belongings directly delivered to their new apartment or home, and in return employers don’t have to pay for storage or temporary housing.
While grossing up will always provide relocating employees with the best moving experience, some companies have decided to gross-up the benefits for internal relocations only. This means any new hires would need to cover the tax liability for their move.
It’s important to note that this depends on the situation. If your company actively recruits someone outside of your location, it would provide a flawed experience for that employee to pay the relocation taxes. You would essentially be asking them to pay a fee to work for your company—when you actively sought them out! However, if someone has applied to your company and identified they are willing to move, not grossing up, could be a way to provide them with a relocation benefit while sharing some of the cost with the new employee.