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Relocation allowance tax

Relocation allowance tax

Old Nov 15th 2017, 7:38 pm
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Default Relocation allowance tax

Hi,

I'm in the process of relocating back to the US via an inter-company transfer. My official start date/move to US payroll is January 1st. I will be going to the US in December and will spend time getting a house etc. Next week the company is transferring a relocation allowance lump sum into my US bank account and they've said that it will be taxed at source before it's paid to me.

I'm a bit confused as to how exactly they will tax this at source. How will they calculate the rate of tax? Will they also deduct Social and Medicare? Does this mean that I'll effectively be on the payroll from next week meaning I'll need to submit a US tax return for 2017?

Any advice is greatly appreciated.

Thanks!
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Old Nov 15th 2017, 8:11 pm
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Default Re: Relocation allowance tax

They'll deduct tax starting with your first pay check in January I would expect.

Yes, they will deduct Social Security and Medicare payments.
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Old Nov 16th 2017, 6:49 am
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Default Re: Relocation allowance tax

Why did you not negotiate that it should be grossed up?
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Old Nov 16th 2017, 11:19 am
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Default Re: Relocation allowance tax

They've spent a lot and it seemed a step too far!

I still don't really get why I need to submit a tax return and pay medicare/social etc. when my end date in the UK isn't until December 31st and my start date is January 1st. It's not like I've been in the country and benefiting from anything.
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Old Nov 16th 2017, 11:39 am
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Default Re: Relocation allowance tax

Originally Posted by mbox View Post
They've spent a lot and it seemed a step too far!

I still don't really get why I need to submit a tax return and pay medicare/social etc. when my end date in the UK isn't until December 31st and my start date is January 1st. It's not like I've been in the country and benefiting from anything.
There are many things in the US tax code which you will never ever "get", including the utter bureaucratic nightmare of doing an annual tax return.
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Old Nov 16th 2017, 11:54 am
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Default Re: Relocation allowance tax

Originally Posted by mbox View Post
They've spent a lot and it seemed a step too far!
is that what they said to you, or is that British reserve on your part? If the latter, then you need to get tough and go and ask! What maybe considered pushy behaviour in the UK is normal in the US, and it won't be held against you if you ask, in an assertive and professional manner.

Originally Posted by mbox View Post
I still don't really get why I need to submit a tax return and pay medicare/social etc. when my end date in the UK isn't until December 31st and my start date is January 1st. It's not like I've been in the country and benefiting from anything.
Short answer, because it's income and the governments on both sides of the Atlantic tax people's income.

Long answer - I hope as part of your relocation your company is offering assistance with tax returns (in both countries for transition years)!
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Old Nov 16th 2017, 2:33 pm
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Default Re: Relocation allowance tax

+1 for asking it to be grossed up. They may well be waiting for you to ask for it. Don't ask, don't get and in the grand scheme of the costs of relocating, it isn't a huge amount but it will make a difference to you.
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Old Nov 16th 2017, 3:31 pm
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Default Re: Relocation allowance tax

Originally Posted by mbox View Post
They've spent a lot and it seemed a step too far!

I still don't really get why I need to submit a tax return and pay medicare/social etc. when my end date in the UK isn't until December 31st and my start date is January 1st. It's not like I've been in the country and benefiting from anything.
If your effective employment tax is January 1, 2018, then you will be here in the US at some point in mid to late December to setup your household. In anticipation of that, your company is giving your relocation allowance before your first physical working date. It makes sense since you will be using those funds before January 1. Are you 100% sure that "at source" is the US and not the UK. You can look at it that "at source" is the UK as that is where the money is coming from. Ask them about it.
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Old Nov 16th 2017, 7:18 pm
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Default Re: Relocation allowance tax

Originally Posted by mbox View Post
Hi,

I'm in the process of relocating back to the US via an inter-company transfer. My official start date/move to US payroll is January 1st. I will be going to the US in December and will spend time getting a house etc. Next week the company is transferring a relocation allowance lump sum into my US bank account and they've said that it will be taxed at source before it's paid to me.

I'm a bit confused as to how exactly they will tax this at source. How will they calculate the rate of tax? Will they also deduct Social and Medicare? Does this mean that I'll effectively be on the payroll from next week meaning I'll need to submit a US tax return for 2017?

Any advice is greatly appreciated.

Thanks!
Why wouldn't they just treat this as a straight expense? Why treat it like salary? Makes no sense
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Old Nov 16th 2017, 7:25 pm
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Default Re: Relocation allowance tax

Originally Posted by BigK View Post
Why wouldn't they just treat this as a straight expense? Why treat it like salary? Makes no sense
Because it's a taxable benefit. They are paying it to him for him to spend (or not) as he wishes.
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Old Nov 16th 2017, 7:27 pm
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Default Re: Relocation allowance tax

Originally Posted by petitefrancaise View Post
Because it's a taxable benefit. They are paying it to him for him to spend (or not) as he wishes.
I see, its more like a bonus than actual expenses for relocation. Then that makes sense
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