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As most relocation managers know, certain relocation benefits such as taxable reimbursements for house hunting, temporary living, and closing costs on a new home (just to name a few) must be counted as income and reported on a transferee’s W-2. While these benefits are necessary and provide a valuable service, they can push the transferee’s earnings past income thresholds for some tax deductions, exemptions and credits.
While every company has its own policy in regards to reimbursement for lost tax credits and deductions, it’s critical that all relocation professionals and transferees understand how benefits are accounted for on W-2’s – and any tax consequences that may occur as a result.
Below please find a chart of the2011 adjusted gross income level thresholds for commonly lost tax credits, exemptions and deductions as a result of relocation benefits. 2012 limits may be indexed for inflation:
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Exemptions and Deductions |
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| Tax Rule | Married Filing Joint | Married Filing Separately | Head of Household | Single |
| Coverdell ESA Contributions* | $190,000 | $95,000 | $95,000 | $95,000 |
| IRA ROTH Contributions* | $166,000 | None | $105,000 | $105,000 |
| Student Loan Interest Deduction* | $120,000 | None | $60,000 | $60,000 |
| Tax Free Interest–Svgs EE Bonds Exclusion (for higher education purposes)* | $104,900 | $69,950 | $69,950 | $69,950 |
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Credits |
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| Tax Rule | Married Filing Joint | Married Filing Separately | Head of Household | Single |
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Adoption Credit |
$182,180 |
$182,180 |
$182,180 |
$182,180 |
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Child and Dependent Care Credit |
$15,000 |
$15,000 |
$15,000 |
$15,00 |
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Child Tax Credit *** |
$110,000 |
$55,000 |
$75,000 |
$75,000 |
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Home Buyers Credit |
$225,000 |
$125,000 |
$125,000 |
$125,000 |
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American Opportunity Credit |
$160,000 |
None |
$80,000 |
$80,000 |
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Lifetime Learning Credit |
$100,000 |
None |
$50,000 |
$50,000 |
*Uses an adjusted AGI; standard deduction amount can be used in lieu of itemized deductions: The value of one personal exemption is $3,700. 2011 standard deduction amounts are $11,600 Married Filing Jointly, $5,800 Married Filing Separately, $5,800 Single, and $8,500 Head of Household.
**None if lived with spouse; if did not live with spouse, then same as single.
***Under age 17 as of 12/31/2011, $1,000 per child.
Of course, every transferee’s financial situation is different. It would be prudent for relocation managers and/or transferees to consult with a tax professional who specializes in relocation tax issues.
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