CRP Financial and Tax Aspects of Relocation 1 — Questions and Answers
Question 1: Under current U.S. tax law, which moving-related expenses paid by an employer are taxable to the employee?
- None — all moving expenses are tax-free
- Most employer-paid moving expenses, as the exclusion was suspended for civilian employees by the Tax Cuts and Jobs Act of 2017 (Correct answer)
- Only expenses exceeding $5,000
- Only house-hunting trip costs
Correct 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.
Question 2: What is 'gross-up' in relocation compensation?
- Inflating the moving estimate to cover unexpected costs
- Additional payment from the employer to cover the taxes owed by the employee on taxable relocation benefits (Correct answer)
- A pay increase associated with a promotion-linked transfer
- A fee charged by the RMC for complex moves
Correct 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.
Question 3: Which IRS form reports taxable relocation benefits paid to an employee?
- Form 1099-MISC
- Form W-2 (Correct answer)
- Form 1098
- Form 2441
Correct 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.
Question 4: What is a 'lump sum' relocation benefit?
- A one-time payment to the employee to manage their own relocation expenses (Correct answer)
- A fixed reimbursement schedule with itemized approvals
- A per-diem allowance for temporary housing
- A shared cost program between employee and employer
Correct 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.
Question 5: Which method calculates gross-up based on the employee's marginal tax rate applied to the net benefit?
- Supplemental method (Correct answer)
- Flat gross-up method
- Inverse method
- Blended rate method
Correct answer: Supplemental method
The supplemental method applies federal and state supplemental withholding rates to the relocation benefit to calculate the gross-up amount.
Question 6: A 'relocation repayment agreement' (clawback) requires an employee to repay relocation costs if they:
- Refuse a promotion after relocating
- Voluntarily leave the company within a specified period after relocation (Correct answer)
- Miss deadlines during the move
- Request additional benefits beyond policy
Correct 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.
CRP Financial and Tax Aspects of Relocation 1
Under current U.S. tax law, which moving-related expenses paid by an employer are taxable to the employee?