If you don’t fully understand the term “relocation tax gross up,” you’re not alone. After all, it’s only existed for a few years. Whether you’re an employee who hasn’t experienced corporate relocation, or an employer creating a new relocation program, you wouldn’t have reason to know what it is.
But now’s a great time to learn. Because—between the Great Resignation and the current labor shortage—people are on the move. Corporate relocations are on the rise, and that means relocation tax events are increasing, too.
Because when it comes to corporate relocation, federal taxes are always part of the picture. No matter which side of the employment fence you’re on, here’s the least you should know about relocation tax gross ups—and what they might mean to you.
We’re not sure who coined the term “relocation tax gross ups,” but we do know where it started: with the Tax Cuts and Jobs Act of 2017, which became effective January 1, 2018.
Up until then, qualified employers could deduct the relocation expenses they paid on behalf of employees—benefits that weren’t taxable to employees. But that sweet deal was upended by the new legislation. Employers can no longer deduct relocation expenses. Worse yet, employees must treat these benefits as taxable income.
Everyone loses, except the IRS.
No wonder, shortly after the law went into effect, employers recognized the dilemma. If they were to continue leveraging relocation benefits as a recruiting and talent management tool, they needed to cover the cost of these taxes—i.e., “gross up” each employees’ relocation benefits so employees wouldn’t need to pay them out of pocket. That’s what it means. Here’s how it works.
According to Ben Franklin, taxes are one of two things in life that are certain. While taxes beat the alternative, relocation taxes are taxing for sure.
It doesn’t matter how the employer delivers benefits—whether by giving employees a lump sum, reimbursing them for submitted invoices, or paying vendors directly. They’re all equally taxable.
And it doesn’t matter what those relocation benefits cover: moving costs, travel expenses, home-related costs, short-term housing, etc. In the eyes of Uncle Sam, they’re all taxable income. There’s no loophole. Sorry—we really looked.