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As part of a job offer, companies may offer to reimburse a candidate’s employment-related relocation expenses. Employees who are transferred may claim relocation expenses which are not covered by the company. Also, in certain instances, the employee may deduct qualified moving expenses that were included as part of regular salary.
Internal Revenue Service (IRS) guidelines for reimbursement require that the distance between the old home and the new place of work be at least 50 miles greater than the distance between the old home and the old place of work. If the distance test is not met, moving reimbursements will be reported as taxable income subject to applicable income and employment taxes.
The reimbursement of an employee’s qualified employment-related relocation expenses is not included in the employee’s income, nor is it reported on Form W-2, so there are no withholdings required. The employer may normally treat payments for relocation expenses as ordinary and necessary business expenses.
Rethinking relocation. Industry estimates that an average domestic relocation costs at least $45,000, while an overseas move will cost the employer much more. Technology based alternatives to permanent moves such as teleconferences, email, and cell phones allow for instant communication. Meetings can take place without everyone being in the same room.
However, relocation is still the method of choice for companies that feel that their best performers need to have experience at all of their locations, or when the talent in one location doesn’t meet the company’s needs.
Other options include making relocations short-term, precluding the need to relocate the employee’s family.
Relocation concerns. Relocating a new employee often means relocating the employee’s family, as well. Different groups to consider may include:
Repayment. Employers may require an employee to repay all or part of relocation expenses if that employee were to leave the company within a certain amount of time, such as 6, 12, or 18 months.
Qualified expenses. Qualified expenses may include:
Non-qualified expenses. Non-qualified expenses may include expenses for:
Temporary housing expenses may or may not be paid.