Questions You Probably Have about Relocation Tax Gross Ups

You've probably read our Relocation Tax Gross-ups Beginner's Guide by now and hopefully you're up to speed on relocation tax gross ups—and then some. But just in case, here are some of the most frequently asked questions about relocation taxes and tax gross-ups:

1. I still don’t get it! What is a tax gross up?

In order to compensate for the tax ramifications of a relocation benefit, companies choose to ‘gross-up’ their relocation benefits. This means, in addition to the overall cost of the relocation benefit, the company also covers the cost of the tax liability to the employee.  The tax liability then becomes a tax liability so many companies will cover the benefit, taxes on the benefit and tax on the tax.

  

2. Why should a company gross up employee relocation benefits?

Grossing up is a much better experience for the employee!  This is important, so that your employee is not blindsided come tax season as that can be financially devastating for a family.

 

3. Do companies have to gross up employee relocation benefits?

No!  While it is recommended to ensure the best employee experience, grossing up on relocation benefits is not required. If your company chooses not to gross-up on relocation benefits, it’s very important that you communicate the tax ramifications to your relocating employee—before they accept the offer to move. 

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4. If a company pays for moving expenses on behalf of the employee, are those expenses still considered taxable?

Yes! It is a common misconception that only lump sums (aka cash) are considered taxable income. All relocation benefits, no matter how they are paid (reimbursed, cash disbursement, direct billed) are considered taxable income with the exception of some corporate real estate programs. Even if the company pays for a moving company or hotel on the employee’s behalf, this is still considered income to the employee, and therefore, taxable.

 

5. If a company reimburses employees for their moving expenses are those expenses still considered taxable?

Yes! The reimbursement of relocation expenses are still considered taxable income to the employee. If your company has an expense reimbursement program in place to cover relocation expenses, you must decide whether those expenses will be grossed up.

 

6. Are relocation lump sums considered taxable income?

Yes. Lump sums, also called cash or relocation bonuses, are considered taxable income to the employee. If the company does not gross up the total dollar amount, taxes must be withheld from the gross amount.

Human Resources Today