trumee

Hi,

I have been offered a relocation package by my company for moving to Houston. They are are offering 20k usd which covers federal, social security and Medicare tax.

A) I don't understand what is meant by the above taxes. How much are they?
B) Is the sum offered above enough for relocation after taking off the taxes in A).

Thanks

civilservant

To be clear, is the 20k you mention the salary offered?

trumee

No that is the relocation money they are offering. Also it is a gross amount which includes taxes as well.

HartleyHare

It's like getting a $20k bonus - you will be subject to tax. How much will probably depend on which tax bracket you fall under, which category you file your tax return under (married, single etc.) and whether any of the payment is exempt from tax (some relocation expenses are exempt). This is where getting a good tax preparer comes in. Your company are basically advising you not to spend the lot, but to hold some back for tax payments. There are quite a few threads on the content of relocation packages which can vary greatly. Here is a recent one: http://britishexpats.com/forum/showthread.php?t=801071
Others will more knowledge than me will probably be along later.

Whether or not this is a sufficient amount depends on your personal circumstances and whether your company are covering other costs (such as flights, accomodation).

md95065

You aren't explaining this very clearly but, reading between the lines, it appears that what you are being offered is $20,000 for relocation expenses which the company will "gross up" to account for the taxes that you owe on it.

In other words, you will end up with $20,000 to spend "tax free" because the company will adjust the amount upwards so that you end up with $20k after tax. Exactly how this works out will depend on your tax bracket and other factors but, for practical purposes lets assume that it will end up being close to $20k in you pocket.

trumee

Unfortunately I don't have a lot of informationdisposed now. I will have to get in touch with the company the info. However, can somebody explain what is federal, social security and Medicare tax. My understanding was that one needs to pay these taxes on salary. So why are these being accounted in the relocation expense?

I have about 10 boxes, few suitcases and 3 desktop computers. I will dispose off my furniture and telly. How much will it be transpose these?

HartleyHare

I have read this that the $20k includes any tax liability, which is why the OP is trying to establish how much they have to spend after taking into account taxes.

MsElui

our relo sum was 'tax protected' That meant we were given a cash lump sum which immediately appeared on the salary slip as extra salary (has to when they give you cash). THEN when we filed our taxes the following spring - the company took a look at them and deduced how much taxes we had overpaid because of the 'extra money appearing as salary' and worked out a compensating sum of money that was paid to us- to put us back to a position we would have been before the extra sum.

The sum was large enough that it actually was enough of a cash refund (again had to go on wage slip) that a further calculation was made the following tax year to further balance it out - resulting in another smaller refund to us from the company.

The easier way for YOU to minimise the tax situation - would be to get your costs like hotel or removals invoiced direct to the company so there is not entry on the salary slip. keep the 'cash' part to a minimum. This means less flexibility but less tax recalcs too.

HartleyHare

If you are from the UK, I think that Federal Tax = income tax, Social Security & Medicare = National Insurance, and also (depending on which state you are moving to) I am sure that there are state taxes payable too.

My understanding is that the $20k relocation money is classed as "income" and for tax purposes would be declared on your tax return and thus tax would be payable. This is why I said you would need to get a tax preparer to help you with your first tax return.

MsElui

yes- our 'relo package' provided tax prep services for the first part and then first full year, as well as the 'end' year (when we left the country or converted to local hire)

federal tax is like income tax. However dependent on where you live you could be required to pay a state income tax, an income tax on the city you LIVE in and an income tax on the city you WORK in (if different). It varies enormously though and one year we had to do SIX returns as we moved twice in one year so had three home city taxes (on top of fed, state, and work city. Our current home is in a township that does NOT have a city tax but we do pay a fed, and state and have a witholding for the work city.

HartleyHare

I think that this is the case for us. We will pay NJ state tax and NYC tax (but I think one offsets the other)? We will be picking up the cost for our tax prep I am keeping records so hopefully we can just hand it all over.

Michael

Because there are so many deductions, credits, exemptions etc. that can possibly be taken in US tax law when filing a year end tax return, it is impossible to predict precisely how much taxes will be owed on income made during the year. For instance if you are given $20,000 for miscellaneous moving expenses, some moving expenses may possibly be deducible from your income causing some savings and also moving you to a different marginal tax bracket (0%, 10%, 15%, 25%, 28%, 33%, and 39.6%). So until your tax return is filled out, everything is just an estimate.

When you start working in the US, you will be required to fill out a W-4 form to indicate how much is to be withheld from your income monthly. The W-4 is just an estimate as to what you think should be withheld and assumes that your income, deductions, credits, and exemptions will be the same from month to month. Being married can be a major tax break if the spouse doesn't work (it basically assumes that each spouse made approximately half the income) but can be a tax disadvantage over two single people if both spouses work and this can causes real complications trying to figure out how to fill out the W-4 forms. Some people change their W-4 several times a year as their income and deductions and life events change.

You also have another complication is that since you will be arriving at the end of the year, you will probably file your tax return as a "Non Resident Alien" but could chose to file as a "Resident Alien" if your taxes are lower filing that way.

US tax law is very complicated with deductions, credits, and exemptions allowed when filing as a "Resident Alien" but may not be allowed when filing as a "Non Resident Alien".

Mr Weeze

Are you going to be paid in GBP or USD - i.e. home country payroll or local contract? If the $20k is it (gross or net) it's a crap offer, relative to what others offer.

Edit - just to be clear, I mean if the $20k is everything on offer for relocation, nothing else is paid.

Lbjen

I've had a relo pay a gross cash amount and we got what was left after taxes, and a relo that gave us an amount that will be grossed up for taxes at the end of the year as described earlier. $20k or even $13-15k (whichever it is) will certainly be enough if it's just you, and you're not bringing a lot. Whether it's an appropriate amount for your position and company is a different story.

sergeyvo

Either you pay taxes from this amount, or your employer makes a tax adjustment providing it as a net income to you.
Use this: http://www.paycheckcity.com/calculator/salary/

- enter your prospective salary income till the end of this year, check the net amount; then add those 20k to the gross number and check net amount again. The difference between two net's is the raw value that you pay from your relocation.

In most of cases it's cheaper to buy new goods here than to drag old across the ocean.