2018 Tax Reform: What You Need to Know

Posted by Abby Baumann on Dec 18, 2017 5:35:27 PM

2018 tax reformOver the last few weeks, the headlines have been filled with coverage about the “TaxCuts and Jobs Act” bill. Discussion has focused on issues ranging from the number of tax brackets to the child tax credit and the alternative minimum tax. The final bill is expected to pass this week, and there are a number of impacts to businesses in America—including changes to how relocation benefits are taxed.

Here is what you need to know about how relocation taxes will change.

The Moving Deduction

For the past 20 years, certain moving expenses associated with relocating for a new job have been considered deductible for individuals, given they meet the time and distance tests. These qualifying expenses (household good moves, storage, auto shipments and final travel) have also been considered excludable, if paid for directly by the employer.

Tax Reform 2018: Eliminating the Moving Deduction

The proposed tax bill will eliminate the moving expense deduction (with the exception of military moves) which would make the following moving expenses taxable: household goods moves, storage, auto shipments and final travel. This means there will be significant tax liability for you or your relocating employees starting January 1, 2018.  

As we wait for the final bill to pass, there are a few things you can do to prepare.

Pay Outstanding Relocation Invoices By the End of the Year

If you are currently offering direct bill benefits to take advantage of tax exclusions, we recommend that you pay any outstanding household goods, final travel, in-transit storage and auto-shipment invoices before the end of the year. If the invoice is paid in 2017, it will follow 2017 tax laws, and will be considered excludable. The IRS does not consider services to be a relocation benefit to the employee until the employer pays for the service on the employee’s behalf. That is why any expenses incurred in 2017 but paid in 2018 may be subject to 2018 tax laws.

Decide How to Help In-Progress Relocations

If the tax bill passes, companies will need to reevaluate their current relocation policies, especially ones that only cover current deductible expenses. Because the bill will make formerly deductible relocation expenses taxable, there will be a new tax liability with your relocation policies. You’ll want to start reviewing your policies to decide how you want to handle this tax liability—especially for your ongoing relocations.

relocation for tech companies

Grossing up the tax liability will provide the best experience for your relocating employees. Grossing up means that the company estimates the tax liability and pays the IRS for the estimated amount on behalf of their relocating employee. If the tax bill passes, it will go into effect January 1st, so you will need to decide what to do with employees who are already in the process of relocating. For employees who were expecting to receive a tax deductible benefit, you should strongly consider grossing the tax liability up, in order to avoid unexpected taxes for these individuals.

Revisit Your Current Policies and Reallocate Money to Your Relocation Budget

Just like you need to reevaluate your policies for ongoing relocations, you also want to begin evaluating long term changes to relocation. The first decision you'll need to make will be if you will gross-up or withhold on taxable relocation benefits. As mentioned above, grossing up provides a better experience for the employee. If you're asking employees to relocate and take on all tax liability for their relocation, you may find it harder to attract and retain top talent.

In addition to deciding to gross-up or withhold, you may also revisit your current benefit structure. Many companies have structured policies to maximize tax excludable benefits by offering direct bill. With these benefits becoming taxable, it may be tempting to switch to a lump sum. However, a lump sum offers no insight to employers about how much an employee is spending or on what it is they are spending. With direct bill benefits in place, companies can control costs by paying only for the services the employee uses. It also helps employers budget for future relocation. For employees, direct bill mitigates out-of-pocket costs and connects them with high-quality, vetted service providers.

Looking Ahead: 2018 Tax Reform

In the changing landscape of relocation, empowering companies with the solutions to manage, track, and control relocation costs will become increasingly important. There are many variables that come with this new tax reform, but one thing we know for sure is that technology is only going to become more important for the relocation industry. Remember to keep technology at the top of mind as you prepare for the upcoming changes.

UrbanBound will continue to follow this bill closely and will keep you updated once the final bill is passed. Please continue to check back for more advice on how to prepare for 2018 tax reform.

Streamline employee relocation today. Request a demo! 

 

 

Topics: Relocation, Relocation Taxes

2018 Tax Reform: How the Pending Tax Bill Affects Relocation Benefits

Posted by Abby Baumann on Dec 12, 2017 11:27:18 AM

As of December 2nd, different tax reform bills have passed through the House and the Senate. Lawmakers from both houses plan to work out the differences between the two bills and create one final bill to be passed and signed into law by President Trump before Christmas.2018 Tax Reform

How the Two Tax Bills Address Relocation Benefits

While the two houses come to a compromise, the Joint Committee on Taxation released a list of the similarities and differences between the House and Senate bills. One thing to note as far as relocation goes, is that among the provisions that are the same, is the elimination of the moving deduction, which currently allows an individual who moves for work to deduct moving expenses (given they meet the time and distance test). While moving costs would no longer be a deductible expense for the individual, it is still unclear what this means for employers that provide relocation benefits to their transferring employees, especially ones with direct bill policies for deductible expenses. With Congress’s plans to pass a new bill by the end of the month, it’s likely we’ll have an answer before 2018. UrbanBound will be sure to keep you updated.

relocation for tech companies

In the meantime, significant issues will need to be addressed before the two houses can agree on final bill. Some of those issues are outlined below:

Itemized Deductions: The House Bill seeks to rid many itemized deductions, while the Senate bill, in some cases, seeks to grow them. For example, the House bill repeals the medical expense deduction, while the Senate bill expands it.

Individual Tax Rates: The House Bill cuts the current 7 tax brackets to 4. The Senate Bill keeps the 7 tax brackets, but lowers 6 of the 7 rates. (15% to 12%, 25% to 22%, 28% to 24%, 33% to 32% and 39.5% to 38.5%).

Estate Tax: Currently, there is a 40% tax on inherited assets over $5.49 million. The House Bill immediately doubles the basic exclusion and repeals the tax after 2024. The Senate also doubles the exclusion, but does not repeal the tax.

For a complete list of the similarities and differences you can reference the document released by the Joint Committee on Taxation.

Streamline employee relocation today. Request a demo! 

Topics: Relocation Taxes

3 Ways You Can Reduce Relocation-Related Burdens for Your Payroll Team

Posted by Lauren Decker on Aug 25, 2016 10:39:32 AM

3 Ways to Reduce Administrative Burdens for PayrollPayroll teams are the unsung heroes of your relocation program.

They are the co-workers who manage the reporting of relocating expenses and are responsible for coding and reporting each expense within a reasonable amount of time in order to keep the company in compliance with the IRS.

While this responsibility does sit squarely within their job description, they often face obstacles when it comes to things like understanding the relocation benefits offered, obtaining the appropriate expense information, or ensuring different teams turn in their information on time.

As the administrator of your company’s relocation program, you can’t fix every relocation-related challenge your payroll team faces, but there are steps you can take to help them accomplish their work more efficiently. Helping your payroll team create efficiency not only benefits them, but it can also save you time, and most important, contribute to a more scalable relocation program.

Here are three ways you can reduce the relocation-related administrative burdens of your payroll team.

1. Consider offering direct bill benefits to relocating employees

The type of relocation benefits you choose to offer can have a large impact on the amount of time and effort your payroll team dedicates to relocation expenses. The administrative impact on your payroll team will vary by the taxability of each relocation benefit you offer, as well as how that benefit is administered.

For example, lump sum benefits are considered taxable income to relocating employees. While this may seem like the most straightforward process, it can actually cause additional work for your payroll team. Because the benefit is taxable, your company will need to decide how to handle the tax treatment. You will either need to withhold taxes from the lump sum payment, or gross-up the liability on behalf of the employee. This process of withholding or grossing up is owned by payroll.

When administering direct bill benefits, there’s an opportunity to take advantage of tax savings. Administering a direct bill benefit ] means your company pays suppliers on behalf of the employee for relocation services. When certain relocation expenses are covered by direct bill, they are considered tax excludable non-reportable — meaning these expenses aren’t reported on the employee’s W-2, which creates additional time savings for your ayroll team.

Several factors go into the decision of what relocation benefits to offer your relocating employees. You will need to decide what works best for your company, but don’t forget that the there are implication for your payroll team, as well as for you and your relocating employees.

2. Utilize relocation technology to administer relocation benefits

Technology can help streamline the reporting process of relocation benefits — no matter which option you choose to provide to employees.

In the past, reporting on relocation expenses was a very manual, time consuming process. Expenses are typically tracked in a spreadsheet or offline format that must be managed and updated manually.

Administering benefits online through relocation technology means that expense data can also be tracked online, making it easier for you and your payroll team to access information. Instead of emailing files back and forth or waiting individual to input data, your payroll team can have one place to reference cost and expense data.

Technology, like Relocation Management Software, allows different team members to view and build relocation cost reports. As a result, your HR team can review the information that’s most important to them while your payroll team can also have regular access to a report of the data they need effectively and efficiently reporting on expenses.

Consider exploring different types or technology or software that can alleviate the time spent manually collecting and compiling relocation expenses. Solutions like these can reduce administrative burdens for both your team and your payroll team.

3. Agree on the standard reporting process and stick to it

Once you’ve decided which benefits to offer relocating employees, and how technology will play a role in that distribution, the last way to reduce the burden of your payroll team is to put a reporting process in place. This process needs to be created with input from payroll, as well as any stakeholders who plays a role in the collection or distribution of the benefits.

For example, if you are working with a third party to administer direct bill benefits, you need to agree on how often the report of relocation expenses will be sent over. If this isn’t solved by online reporting, then it’s best to establish a regular frequency or cadence at which your team expects to receive the report. Your payroll team may want to identify other important dates, such as end of the year cut-offs, and other reports they will need, such as end of the year reporting.

Addressing these needs and key dates up-front can help reduce payroll’s workload throughout the year. If everyone is aligned, there’s less risk that payroll will have to track down information last minute. Establishing this process up front helps reduce your payroll team’s workload, but can also help reduce your workload. If payroll needs to gather information last minute, they will likely be reaching out to the person who administers the company’s relocation program.

As you create your relocation program, or make updates to an existing program, consider how you can reduce time spent on relocation-related tasks by your payroll team. Creating a more efficient process for administering and tracking relocation benefits helps you save time and money, and even reduces the risk the being out of compliance with the IRS. Use these tips as a starting point to make changes that positively impact your team and your payroll team!

lump sum

Topics: Relocation Policy, Relocation Taxes

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