Articles and updates on relocation tax issues.
As we know all too well, the tax implications of relocating employees is significant. With the exceptions of household goods moving, 30 days of storage, final move expenses and compliant home sale programs, many relocation benefits are taxable to the employee. Further, not only must you treat the other expenses as income to your employee, you must also treat any tax assistance for covered benefits as taxable income as well.
There has always been some confusion around tax filings for employees on temporary assignments. At what point should companies withhold state and local taxes for assignees? One day? One week? A month? Technically, if even one day is spent working in a state, then local and/or state taxes may need to be withheld. Most companies, however, use a 30 day rule where if one month or more is spent in a state, then they will proceed with withholding state and local taxes. It’s important to know that the popular 30 day rule is not a law – it is simply an industry practice.
This article is reprinted from Taxolutions with permission from Rowland, Johnson & Company, P.A.
Many Americans are considering moving abroad to take advantage of professional and personal opportunities in a global economy. But as a U.S. citizen living in a foreign country, your tax situation may become more complex, especially because the U.S. requires all of its citizens and green card holders living abroad to continue to file returns in the U.S., and pay taxes on their worldwide income. Depending on the source and level of your income, however, you may be entitled to a number of tax breaks, chiefly designed to keep you from being taxed doubly by your adopted country, as well as the United States. Whether you actually come out ahead on taxes will depend on which country you work in and its tax rates, along with your individual financial and employment situations.
In my last post about tax issues that will impact relocation in 2013, I want to cover per diem rates. This really only applies to government employees, but some corporate programs do follow the government rates when it comes to per diem. If you are a relocation manager for a government entity or a business that follows government rates, then you already know that the Government Services Agency (GSA) establishes the per diem rates for the United States. These are the maximum allowances that federal employees are reimbursed for expenses incurred while on official travel. This travel does include home finding trips, so your transferees will be impacted.
A few weeks ago, I published a post about the tax uncertainty in Washington, D.C. Unfortunately, the fiscal cliff continues to loom before us and I still cannot say definitively what will change. That said, however, I can hone in on some likely changes and promise to share them here.
We’ve already discussed the Medicare and capital gains tax that will probably go through in the New Year. You can find that post here – it’s the first of a series of relocation tax articles I will post here. Today I want to discuss the second issue I see coming down the pipe: community property states.
There has been much conversation about the current tax uncertainty in Washington. Unfortunately, while our lawmakers duke it out on the hill, businesses everywhere are frozen on the edge of a “tax cliff,” unable to make informed decisions on tax and business planning for 2013. Despite the fact that all business – small and large – will be negatively impacted by further delay in tax policy decisions, and that respectable tax authorities, including the AICPA, are pleading for clarity, our politicians have yet to throw down their armor and strike a compromise.
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.
When people ask me which aspect of tax is the most difficult for the relocation industry, I always say that half the battle is staying current on tax changes. The other half is knowing which rules (out of so many) have the potential to impact a transferee. It’s important to remember that, more often than not, rules that seem to be unrelated to relocation actually pack a major tax punch for relocating employees.
Relocating employees and their employers are facing a tricky tax issue as a result of the home buyer’s tax credit. From April 2008 to June 2010 first time home buyers and non-first time home buyers were able to take advantage of tax credits of up to $8,000 and $6,500, respectively. Surely, a number of employees purchased homes for this reason and likely claimed the credits on that current year’s 1040 tax form (and IRS Form 5405) without thinking much of it.
For many employees, the holiday season is a time to slow down and smell the pine trees. But, for the payroll department, this time of year is extremely hectic. Not only is payroll busy with year-end responsibilities for all employees, but it also the time of year when all relocation expenses and related payroll taxes must be finalized for reporting on an employee’s W2 form. Even if a company’s transferee population is relatively small in comparison to the entire employee base, juggling the myriad requirements, details and deadlines associated with year-end reporting is stressful.