RSC Expense Management & Tax Compliance 2 — Questions and Answers
Question 1: Under IRS rules, which relocation expense reimbursement became fully taxable to employees after the Tax Cuts and Jobs Act of 2017?
- Moving of household goods
- Final trip to new location
- Pre-decision home-finding trips
- All employer-paid relocation reimbursements (Correct answer)
Correct answer: All employer-paid relocation reimbursements
The TCJA suspended the moving expense exclusion for most employees (2018–2025), making virtually all employer relocation reimbursements taxable wages.
Question 2: A relocation policy uses a 'gross-up' provision. What is the primary purpose of this provision?
- Reduce the company's relocation budget
- Offset the additional income tax burden on the relocating employee (Correct answer)
- Increase the lump-sum payment for senior executives only
- Comply with state payroll reporting requirements
Correct answer: Offset the additional income tax burden on the relocating employee
Gross-up payments reimburse employees for the additional federal and state income taxes they owe on taxable relocation benefits.
Question 3: Which IRS form must employers use to report taxable relocation benefits paid to employees?
- Form 1099-MISC
- Form W-2 (Correct answer)
- Form 3903
- Form 4868
Correct answer: Form W-2
Taxable relocation benefits are reported as wages on the employee's Form W-2 in Box 1.
Question 4: An employee moves from New York to California for work. Which state's income tax rules primarily govern withholding on relocation payments made during the move?
- New York, as the state of origin
- California, as the destination state
- The state where the employer's headquarters is located
- Both states may have withholding obligations depending on timing (Correct answer)
Correct answer: Both states may have withholding obligations depending on timing
Multi-state withholding obligations can arise from both origin and destination states depending on when income is earned and paid.
Question 5: A 'miscellaneous expense allowance' in a relocation policy is best described as:
- A reimbursement for only documented receipts
- A fixed lump sum for incidental costs not otherwise covered (Correct answer)
- A tax-exempt stipend for home-finding
- A per diem for temporary housing
Correct answer: A fixed lump sum for incidental costs not otherwise covered
A miscellaneous expense allowance is a fixed, unrestricted payment intended to cover small incidental relocation costs without requiring receipts.
Question 6: Under a 'direct reimbursement' relocation model, who is responsible for paying the moving vendor?
- The relocation management company pays directly
- The employee pays and is reimbursed by the employer (Correct answer)
- The employer pays the vendor directly without employee involvement
- A third-party escrow account covers all vendor costs
Correct answer: The employee pays and is reimbursed by the employer
In a direct reimbursement model, the employee pays vendors out of pocket and submits expense reports to the employer for reimbursement.
Question 7: Which relocation expense exception still allows active-duty military members to deduct moving expenses from federal taxes even after the TCJA?
- Members of the Armed Forces on active duty moving pursuant to military orders (Correct answer)
- Federal civilian employees relocating to Washington, D.C.
- Members of the National Guard during training exercises
- Reservists called up for more than 30 days
Correct answer: Members of the Armed Forces on active duty moving pursuant to military orders
The TCJA's suspension of the moving expense deduction does not apply to active-duty military members moving under military orders.
RSC Expense Management & Tax Compliance 2
Under IRS rules, which relocation expense reimbursement became fully taxable to employees after the Tax Cuts and Jobs Act of 2017?