RSC Expense Management & Tax Compliance 3 — Questions and Answers
Question 1: A relocation policy includes a 'repayment agreement' clause. When is this clause typically triggered?
- When an employee exceeds the relocation budget
- When an employee voluntarily leaves the company within a specified period after relocating (Correct answer)
- When moving expenses are not submitted within 30 days
- When an employee requests a second relocation within one year
Correct answer: When an employee voluntarily leaves the company within a specified period after relocating
Repayment (or 'clawback') agreements require employees to repay relocation costs if they voluntarily resign within the agreed-upon period, typically 12–24 months.
Question 2: What is the 'supplemental rate' method of federal income tax withholding, and why is it commonly used for relocation payments?
- A reduced rate applied to qualified moving expenses only
- A flat withholding rate (currently 22%) applied to supplemental wages like bonuses and relocation (Correct answer)
- A method that averages the employee's annual tax rate
- A state-specific rate applied when federal withholding is waived
Correct answer: A flat withholding rate (currently 22%) applied to supplemental wages like bonuses and relocation
The supplemental rate (22% for most employees in 2024) is a flat federal withholding rate applied to supplemental wages including taxable relocation benefits.
Question 3: A company reimburses an employee $8,000 for house-hunting trips and temporary living. Under current law, how should this be treated on the payroll?
- Excluded from wages as a qualified moving expense
- Included in wages and subject to payroll taxes (Correct answer)
- Reported on Form 1099-NEC as non-employee compensation
- Exempt from FICA but included in federal income tax wages
Correct answer: Included in wages and subject to payroll taxes
Post-TCJA, house-hunting and temporary living reimbursements are included in taxable wages and subject to both income tax and FICA withholding.
Question 4: Which term describes the method of calculating gross-up where the gross-up itself is also subject to tax, requiring an iterative calculation?
- Simple gross-up
- Flat gross-up
- Gross-up on gross-up (pyramiding) (Correct answer)
- Marginal gross-up
Correct answer: Gross-up on gross-up (pyramiding)
Pyramiding or 'gross-up on gross-up' accounts for the fact that the gross-up payment is itself taxable income, requiring multiple iterations to arrive at the correct net amount.
Question 5: An employee's relocation package includes a $5,000 lump sum. The employee spends only $3,000. Under a typical lump-sum policy, what happens to the remaining $2,000?
- It must be returned to the employer
- The employee keeps it; no accounting is required (Correct answer)
- It is applied to the next relocation benefit tier
- It is placed in a dedicated relocation savings account
Correct answer: The employee keeps it; no accounting is required
Lump-sum policies allow employees to retain any unspent funds, providing flexibility but placing budget risk on the employee.
Question 6: Which IRS publication provides guidance on the tax treatment of fringe benefits, including relocation and moving expenses?
- Publication 15-B (Employer's Tax Guide to Fringe Benefits) (Correct answer)
- Publication 334 (Tax Guide for Small Business)
- Publication 503 (Child and Dependent Care Expenses)
- Publication 946 (How to Depreciate Property)
Correct answer: Publication 15-B (Employer's Tax Guide to Fringe Benefits)
IRS Publication 15-B is the primary employer reference for the tax treatment of fringe benefits, including moving expense reimbursements.
Question 7: A company offers a 'tax assistance' program on relocation benefits. What distinguishes 'tax assistance' from a full gross-up?
- Tax assistance covers only state taxes; gross-up covers federal taxes
- Tax assistance is a partial fixed dollar amount, while gross-up fully offsets the tax liability (Correct answer)
- Tax assistance applies only to lump-sum policies
- There is no practical difference between the two terms
Correct answer: Tax assistance is a partial fixed dollar amount, while gross-up fully offsets the tax liability
Tax assistance provides a fixed or partial dollar amount toward tax liability, whereas a full gross-up is calculated to fully neutralize the employee's tax burden on the benefit.
RSC Expense Management & Tax Compliance 3
A relocation policy includes a 'repayment agreement' clause.
When is this clause typically triggered?