Financial and Tax Aspects of Relocation Flashcards

Under current U.S. tax law, which moving-related expenses paid by an employer are taxable to the employee?

Answer: Most employer-paid moving expenses, as the exclusion was suspended for civilian employees by the Tax Cuts and Jobs Act of 2017

The TCJA suspended the moving expense deduction and exclusion for civilian employees through 2025, making most employer-paid relocation benefits taxable income.

What is 'gross-up' in relocation compensation?

Answer: Additional payment from the employer to cover the taxes owed by the employee on taxable relocation benefits

Gross-up ensures the employee's take-home pay is not reduced by taxes on relocation benefits; the employer covers the tax obligation on top of the benefit amount.

Which IRS form reports taxable relocation benefits paid to an employee?

Answer: Form W-2

Taxable relocation benefits are reported as wages on the employee's W-2, making them subject to income tax and payroll taxes.

What is a 'lump sum' relocation benefit?

Answer: A one-time payment to the employee to manage their own relocation expenses

A lump sum provides the employee a fixed dollar amount to self-manage relocation, offering flexibility while capping employer cost.

Which method calculates gross-up based on the employee's marginal tax rate applied to the net benefit?

Answer: Supplemental method

The supplemental method applies federal and state supplemental withholding rates to the relocation benefit to calculate the gross-up amount.

A 'relocation repayment agreement' (clawback) requires an employee to repay relocation costs if they:

Answer: Voluntarily leave the company within a specified period after relocation

Clawback provisions protect employers from investing in a relocation only for the employee to resign shortly after, requiring proportional repayment of costs.