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Top 15 Payroll and Relocation Tax Issues for 2014

Relocation Tax ExpertEvery year, we have tax changes that we need to know about in order to give our clients and their transferees the tools they need to account for their year-end tax situation. This year, however, it’s important to note that there is so much going on when it comes to relocation taxation and payroll that human resources, third party relocation companies and transferees should be taking the time now to understand the nuances. If you are in HR, and you have a relocation tax policy that is more than a year old, you should consider it outdated, possibly irrelevant. 

Here are the top 15 payroll and relocation tax issues for 2014:

1. The new relocation tax rates in 2014 mean that year-end gross-ups will be much higher. The average gross-up percentage is over 70 percent and executive gross-ups are closer to 90-95 percent, all because of the new 2014 higher tax rates.

2. There are new gross-up methodologies for most government agencies for 2015. Moving forward, the typical “corporate approach” will now be used by most government agencies that follow the federal tax rate

3. Temporary assignments and commuters are a hot button issue. Why?

  1. R. 1129 and S. 1645 apply potential new 30 day state tax withholding rules, effective in 2015.
  2. FICA $117,000 (6.20%) withholding issues/paybacks, and the cost of forgiveness, increases in 2014.
  3. New 2015 FICA limit is $118,500 (6.20%) and 1.45% Medicare limits.

4. For 2014, the key IRS forms affecting relocation are W-2, W-4, 3903, Sch. D and the 2014 RTR (formerly IRS form 4782).

5. Forty-two states (including DC) have taxes affecting relocation, but 9 states do not. Sixteen states have reciprocal state tax agreements, while 10 states have significant local taxes affecting relocation.

6. Relocation red flags are increasing IRS audits. IRS audits will increase in 2014.

7. Medicare rates are higher in 2014 at 2.35% (1.45% & 0.90%) and 3.80%. This impacts relocation expenses.

8. There are new phase-outs of exemptions & itemized deductions (Single $250k / $300k MFJ) in 2014.

9. The foreign financial assets form (IRS Form 8938) is now required from transferees (Single$50k/MFJ$100k).

10. Reporting of foreign bank financial accounts (Form TD F 90-22.1) is more prevalent (if >$10k average).

11. Expect requests for gross-up audits and tax reconciliations to soar.

12. Counseling is critical. HR and third-party relocation companies must manage expectations with regards to taxes.

13. Many transferees who earn over $150,000 and have over $100,000 of taxable moving expenses on their W-2 owed well over $20,000 in extra taxes on their 2014 Federal and State tax returns based on polices that did not consider spouse income.

14. Going into year-end 2014, more than 20 states are now considering same sex marriage with respect to relocation tax gross-ups.

15. Last, but definitely not least, if your relocation tax policy is more than one year old, it is out dated.

This post should not be considered tax advice. Be sure to consult with a tax expert directly. We also suggest that you obtain a copy of Relocation Taxes’ new 2015 ReloTax book.

David Oltman is the Chief Compliance Officer and Co-Founder of Ineo/Relocation Taxes LLC. He is an expert in the field of corporate relocation tax and technology, including gross-up software and personal income tax return preparations. David can be reached at oltman@relotax.comor 203-529-3020. Or,  connect with David on LinkedIn or Twitter!

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