Relocation Costs Directly Paid - tax implications?
May 18th 2014, 12:15 am
#16
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Re: Relocation Costs Directly Paid - tax implications?
Topic 514, IRS covers this:
"If your employer reimbursed you or gave you an advance or allowance for your employee business expenses that is treated as paid under an accountable plan, the payment should not be shown on your Form W-2 (PDF) as pay. You do not include the payment in your income, and you may not deduct any of the reimbursed amounts."
The advice given by Catmo is seriously in error and should not be taken as informed opinion.
"If your employer reimbursed you or gave you an advance or allowance for your employee business expenses that is treated as paid under an accountable plan, the payment should not be shown on your Form W-2 (PDF) as pay. You do not include the payment in your income, and you may not deduct any of the reimbursed amounts."
The advice given by Catmo is seriously in error and should not be taken as informed opinion.
I think it's more similar to this example from that link:
Illustrated Example
Tom and Peggy Smith are married and have two children. They owned a home in Detroit where Tom worked. On February 8, 2013, Tom's employer told him that he would be transferred to San Diego as of April 10 that year...
...Tom was reimbursed $10,907 under an accountable plan. His employer gave him the following breakdown of the reimbursement that was allowed under the employer's plan.
Moving personal effects $6,800
Travel (and lodging) to San Diego 708
Travel (and lodging) for househunting trip 449
Lodging for temporary quarters 1,450
Loss on sale of home 1,500
Total reimbursement $10,907
The employer included this reimbursement on Tom's Form W-2 for the year. The reimbursement of allowable expenses, $7,508 for moving household goods and travel to San Diego, was included in box 12 of Form W-2. His employer identified this amount with code P.
The employer included the balance, $3,399 reimbursement of nonallowable expenses, in box 1 of Form W-2 with Tom's other wages. Tom must include this amount on Form 1040, line 7. The employer withholds taxes from the $3,399, as discussed under Reimbursement for deductible and nondeductible expenses under Tax Withholding and Estimated Tax, earlier. Also, Tom's employer could have given him a separate Form W-2 for his moving expense reimbursement.
I am not great on tax so could well be totally wrong.
But if the employer could pay direct for things without you having to be taxed on them, that would be a big loophole.
Last edited by Sally Redux; May 18th 2014 at 12:33 am.
May 18th 2014, 1:06 am
#17
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Re: Relocation Costs Directly Paid - tax implications?
Having read that example, you can see that the employer reimburses the 'allowable' expenses under an accountable plan.
Moving personal effects $6,800
Travel (and lodging) to San Diego 708
Travel (and lodging) for househunting trip 449
Lodging for temporary quarters 1,450
Loss on sale of home 1,500
Total reimbursement $10,907
The other items listed are not business expenses and thus are not deductible. The employer then includes the allowed expenses on his W-2 with a 'P' annotation meaning they're excluded from his income.
To the OP's question, the expenses detailed are absolutely allowable under an accounting reimbursement plan. Hence, there will be no tax liability incurred, apart from potentially the $10k parachute payment.
Moving personal effects $6,800
Travel (and lodging) to San Diego 708
Travel (and lodging) for househunting trip 449
Lodging for temporary quarters 1,450
Loss on sale of home 1,500
Total reimbursement $10,907
The other items listed are not business expenses and thus are not deductible. The employer then includes the allowed expenses on his W-2 with a 'P' annotation meaning they're excluded from his income.
To the OP's question, the expenses detailed are absolutely allowable under an accounting reimbursement plan. Hence, there will be no tax liability incurred, apart from potentially the $10k parachute payment.
Last edited by hungryhorace; May 18th 2014 at 1:37 am.
May 18th 2014, 7:47 am
#18
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Re: Relocation Costs Directly Paid - tax implications?
Hungry Horace is right.
The OP should look at their pay stubs for around the time they received the $10K deposit into their account. Most likely it was listed there and you've already paid (an approximation of) the tax on it, the same way you do with salary. It shouldn't be on your W2 if it's not on a paystub. Because the $10K was a one-off payment the withholding on it might be slightly higher or lower than usual so it's possible you might owe a little more (or less) come tax time.
The OP should look at their pay stubs for around the time they received the $10K deposit into their account. Most likely it was listed there and you've already paid (an approximation of) the tax on it, the same way you do with salary. It shouldn't be on your W2 if it's not on a paystub. Because the $10K was a one-off payment the withholding on it might be slightly higher or lower than usual so it's possible you might owe a little more (or less) come tax time.
May 18th 2014, 2:55 pm
#19
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Re: Relocation Costs Directly Paid - tax implications?
Having read that example, you can see that the employer reimburses the 'allowable' expenses under an accountable plan.
Moving personal effects $6,800
Travel (and lodging) to San Diego 708
Travel (and lodging) for househunting trip 449
Lodging for temporary quarters 1,450
Loss on sale of home 1,500
Total reimbursement $10,907
The other items listed are not business expenses and thus are not deductible. The employer then includes the allowed expenses on his W-2 with a 'P' annotation meaning they're excluded from his income.
To the OP's question, the expenses detailed are absolutely allowable under an accounting reimbursement plan. Hence, there will be no tax liability incurred, apart from potentially the $10k parachute payment.
Moving personal effects $6,800
Travel (and lodging) to San Diego 708
Travel (and lodging) for househunting trip 449
Lodging for temporary quarters 1,450
Loss on sale of home 1,500
Total reimbursement $10,907
The other items listed are not business expenses and thus are not deductible. The employer then includes the allowed expenses on his W-2 with a 'P' annotation meaning they're excluded from his income.
To the OP's question, the expenses detailed are absolutely allowable under an accounting reimbursement plan. Hence, there will be no tax liability incurred, apart from potentially the $10k parachute payment.
May 18th 2014, 3:06 pm
#20
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Posts: 5,154
Re: Relocation Costs Directly Paid - tax implications?
Oh OK then. Just for clarity, I had taken out some of the explanation in that example with "...", it showed that the $3,399 was for items the employer had reimbursed which were non allowable, such as the house-hunting trip, loss on sale of house. Maybe OP can get that if it was paid for directly though.
May 19th 2014, 4:24 pm
#21
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Posts: 186
Re: Relocation Costs Directly Paid - tax implications?
OK So before I get shot down I know this has been discussed a lot, but because it has been discussed a lot there is lots of conflicting info around... hence my questions to try and clarify the situation.
We've been here in CA about 5 months and we are looking at a UK return. Not because we want to go back (we don't) but purely because of the cost of living here in Southern California being so high, coupled to a single salary and 3 kids.
I am trying to forward plan the costs to stay here and one area is relocation costs, and which ones I will get taxed on. I want to find this out so that I can budget monthly.
The company paid several bills directly:
- Recce trip flight/hotel/car ~$3k
- Shipping/Removal company ~$10k
- One way flights ~$5k
They also put $10k into my US bank account, most of which went to the landlord of the rental house for deposit and first month rent.
Can anyone please tell me which one(s) of these will be taxable?
Thanks
We've been here in CA about 5 months and we are looking at a UK return. Not because we want to go back (we don't) but purely because of the cost of living here in Southern California being so high, coupled to a single salary and 3 kids.
I am trying to forward plan the costs to stay here and one area is relocation costs, and which ones I will get taxed on. I want to find this out so that I can budget monthly.
The company paid several bills directly:
- Recce trip flight/hotel/car ~$3k
- Shipping/Removal company ~$10k
- One way flights ~$5k
They also put $10k into my US bank account, most of which went to the landlord of the rental house for deposit and first month rent.
Can anyone please tell me which one(s) of these will be taxable?
Thanks
May 19th 2014, 4:44 pm
#22
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Re: Relocation Costs Directly Paid - tax implications?
I'm going to add to the advice to check your payslip. We've been through 2 relocations with the same company and my partner's company paid the tax that would have been incurred by the relocation package, including the cash for misc expenses. For example, a $10K allowance appears as $14K (or whatever) on the payslip and W2 although you only receive $10K. It doesn't make sense that they wouldn't do it that way. Why give you an allowance of $10K if you're going to have to pay back 40% of it in tax?
But I agree that getting the non-deductible portions of a relocation package grossed up is one of the most important aspects of such a package.
May 19th 2014, 6:27 pm
#23
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Re: Relocation Costs Directly Paid - tax implications?
Yes I get that but I think most 'decent' employers will ensure that the money they give you is the final amount and that you won't end up with a big tax bill. Hopefully!
May 19th 2014, 7:38 pm
#24
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Re: Relocation Costs Directly Paid - tax implications?
Given the number of folks who come on here and discover that their packages are not grossed up, I think you are too hopeful!
May 19th 2014, 7:51 pm
#25
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Re: Relocation Costs Directly Paid - tax implications?
I'm going to add to the advice to check your payslip. We've been through 2 relocations with the same company and my partner's company paid the tax that would have been incurred by the relocation package, including the cash for misc expenses. For example, a $10K allowance appears as $14K (or whatever) on the payslip and W2 although you only receive $10K. It doesn't make sense that they wouldn't do it that way. Why give you an allowance of $10K if you're going to have to pay back 40% of it in tax?
May 19th 2014, 7:58 pm
#26
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Re: Relocation Costs Directly Paid - tax implications?
May 19th 2014, 8:26 pm
#27
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Re: Relocation Costs Directly Paid - tax implications?
Thanks for all of the responses.
I came over to a small company (35 people now) and they'd never pulled anyone over with a visa before so the grossing-up hadn't occurred to them.
The 10k was paid directly into my bank account before I even started to get pay slips - a month before I started work. But I guess that still means the IRS will treat it as income.
I came over to a small company (35 people now) and they'd never pulled anyone over with a visa before so the grossing-up hadn't occurred to them.
The 10k was paid directly into my bank account before I even started to get pay slips - a month before I started work. But I guess that still means the IRS will treat it as income.
May 19th 2014, 8:47 pm
#28
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Posts: 186
Re: Relocation Costs Directly Paid - tax implications?
Thanks for all of the responses.
I came over to a small company (35 people now) and they'd never pulled anyone over with a visa before so the grossing-up hadn't occurred to them.
The 10k was paid directly into my bank account before I even started to get pay slips - a month before I started work. But I guess that still means the IRS will treat it as income.
I came over to a small company (35 people now) and they'd never pulled anyone over with a visa before so the grossing-up hadn't occurred to them.
The 10k was paid directly into my bank account before I even started to get pay slips - a month before I started work. But I guess that still means the IRS will treat it as income.
May 19th 2014, 8:50 pm
#29
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Thread Starter
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Posts: 255
Re: Relocation Costs Directly Paid - tax implications?
I am not leaving any time soon as they are helping me out.
At least I know the direct payments are clear.
Thanks all.
At least I know the direct payments are clear.
Thanks all.
May 19th 2014, 9:34 pm
#30
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Re: Relocation Costs Directly Paid - tax implications?
Apologies if what I said was incorrect or misleading. In my experience, our relocation expenses were not grossed up and we had additional tax to pay on them. The employer both paid directly and reimbursed us for our relocation costs, and the non allowable part of these were included on the W2 and we paid the additional tax when we filed our tax return.
This was for a large international company, that does many relocations. Speaking to other employees, they have also had to pay additional tax on relocation expenses. We did ask when we were dealing with the relocation (after reading these boards) for our package to cover the tax, but were told that was not company policy.
This was for a large international company, that does many relocations. Speaking to other employees, they have also had to pay additional tax on relocation expenses. We did ask when we were dealing with the relocation (after reading these boards) for our package to cover the tax, but were told that was not company policy.