One thing that many employees don’t consider when accepting a “lump sum” moving or relocation allowance is that the IRS views this amount of money as a bonus. Because of this they will eventually ask you for what was not withheld at the time. Here is some excellent information from The Global Tax Network (for more information read pages 25-27 of this booklet).
What are the tax implications of a lump-sum relocation payment?
Many companies have moved away from the administration side of a relocation program that required reimbursements and are instead using a “lump-sum” approach to support relocating employees.
- Some companies structure their program to cover taxable moving expenses, such as house hunting, temporary living, etc., and then reimburse the “non-taxable” expenses.
- The lump-sum reimbursement is fully taxable to the employee. Depending on the company program, either the company or the employee would ultimately bear the associated tax cost of including these amounts in the employee’s wages.
However, other companies have structured their lump-sum program to cover all relocation expenses.
- If the company uses this method, the lump sum is fully taxable to the employee.
- The employee should be instructed to track the “non-taxable” expenses. A claim for a moving expense deduction may be available on their U.S. federal individual income tax return.
- Then the applicable moving expense amount is a reduction to a taxpayer’s adjusted gross income (AGI).
For more information from the IRS, click here.
If you would like help or have questions about developing a lump sum relocation program for your company, or if you are a corporate transferee and have questions, please contact Richard Clarke, SVP, at (408) 346-0797 or firstname.lastname@example.org.