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Relocation Tax Reporting for Transferees

Just as you are working through the tax filing process in HR, Payroll and Finance, so are your transferees.. That means it’s a good time to remind your transferees about some of the tax deductions they may be eligible for due to their relocation. This is especially helpful for first-time transferees or last year’s college grads who may have limited experience with relocation and/or filing taxes in general. While you can offer your transferee some basic advice, it’s still important that they speak to their accountant, tax consultant, or relocation provider to ensure they are filing correctly and meeting all requirements.

Talk to your transferees about the following:

  1. Time and Distance: Transferees can usually deduct expenses incurred during a move IF the move takes place within one year of their start date at work in the new location. Additionally, they need to meet the “distance test.” If the new position is at least 50 miles further from the old home than the last position was, expenses can be deducted.
  2. Time Spent: Your employee needs to be employed full-time for a minimum of 39 weeks during the first year at the new location. If they happen to file before they have satisfied the time test, they can still deduct allowable expenses if they expect to meet it in the following year.
  3. Travel: Lodging and transportation expenses can be deducted for both the transferee and their family. This includes hotels, airfare, vehicle mileage, parking fees and tolls that were encountered en route to the new home. But, they can only be deducted once per person. So if, for example, the employee traveled back and forth between homes more than once, the travel expenses for only one of those trips are tax deductible.
  4. Household Goods: The costs of packing and transporting goods via a moving company are deductible if the requirements above are met. Depending on the situation, storage costs may be deductible as well.
  5. Utilities: The fees associated with disconnecting your utilities at the old home and connecting them at the new home are also tax deductible.

Your relocation service provider should provide a Relocation Tax Report to each transferee explaining all of the relocation related expense reimbursements and payments (including tax assistance) that will be included in the transferee’s W2. It is critical that your relocation partner and reconcile with your payroll department about any relocation expense amounts that will be on the transferee’s W2. Take a look at the example below:

Relocation Tax

 

 

It is important to note the following distinction: If your transferee did not get reimbursed or the employer did not pay for the benefits described above, then the transferee can deduct those expenses. However, if the employer did pay, then these items cannot be deducted. That being said, if there are additional out of pocket expenses relating to any of the items listed above that the transferee incurred and the company did not cover, then the transferee can deduct those expenses provided they retained their receipts as supporting documentation. For example, if a company did not cover packing materials but did cover the cost of a U-Haul, the transferee can then deduct the cost of the packing materials.

Filing taxes at the end of the year is stressful for everybody, but don’t allow your transferees to miss out on potential deductions. Your relocation partner should be willing and able to assist in any explanations for either you or your employees. Further, your partner should also be able to connect you with a relocation tax expert.

For additional tax information that will impact you this season, please click on the links below:

Top 15 Payroll and Relocation Tax Issues for 2014

2015 Relocation Tax Information

Do you have any relocation tax stories? Please share below.

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MIKE CANNING
VP, Client Services

RICK CALANNI
VP of Business Development Northeast Region

 

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