Understanding the Benefits of Tax Assisting Your Employee Relocations

Often, employers building their first corporate relocation program will ask us: do we really need to offer relocating employees tax assistance, too?

Hey, we get it. Paying for employee relocations isn’t cheap to begin with, and no one likes paying more than they need to. Especially more taxes. And someone else’s taxes at that. The short answer is: there’s no rule that says you must cover the taxes triggered when you pay your employees’ relocation expenses, a benefit known as relocation tax gross-ups. But unquestionably, it is the smart thing to do, as well as the industry standard. 

For one thing, if you fail to offer tax assistance to your employees, you’re undercutting the value of your relocation benefits, right out of the gate. For another, the vast majority of employers do it, so you’ll be less competitive if you don’t offer this benefit.

Admittedly, it’s a tough pill for many employers to swallow. But there are things you can do to make it go down easier.

Why Relocation-related Tax Assistance Matters

If this is your first experience managing relocation benefits, then you may be mystified by the whole relocation tax gross-up situation.

The bottom line: according to U.S. tax code, employees must pay taxes on their relocation benefits, which are not tax deductible to employers.

It doesn’t matter what those benefits cover or how they’re provided. It’s been this way since 2018, thanks to the Tax Cuts and Jobs Act of 2017.

When the law first became effective, employers immediately began weighing the pros and cons of providing relocation tax gross-ups. Needless to say, the vast majority concluded that it was in their interest to do so. Here’s why.

The Benefits of Tax Assisting Employee Relocations

Remember, employers offer relocation programs in order to attract talented new hires from afar, or to persuade valued employees to transfer to new location. The more attractive the relocation benefits, the more compelling the job offer.

Successful relocation benefits accomplish two things:

• They cover most—or, preferably all—of an employee’s relocation expenses.
• They ensure that employees have a positive relocation experience, facilitating a smooth move that’s free of unpleasant surprises.

When employers fail to pay relocation tax gross-ups, they fail on both counts, because:

• Tax assistance is generally the third-largest relocation expense, right after moving household goods and home-sale related benefits. That’s a substantial chunk of expenses going unpaid!
• Getting stuck with an unexpected tax bill is the opposite of a positive experience.

And should you choose not to offer tax assistance, what’s the best time to deliver the bad news? Do you give new hires fair warning and tell them upfront, which might change their mind about accepting the job?

Or do you set them up for an ugly surprise later, one that might harm your ongoing relationship?

Either way, it’s a lose/lose.

And consider this: Indeed.com, the world’s #1 job site, coaches jobseekers how to ask for relocation tax gross ups. It even provides a template letter that candidates can use. In other words, there’s simply no ducking this issue.