Relocation

Scope

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.

Regulatory citations

• None

Key definitions

• None

Summary of requirements

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:

• Partner/spouse. Often relocations also mean new employment for both the employee and their partner. Increasingly, both partners will be positioned along a career path, and companies are finding that relocating one requires that the company help re-employ the other.
• Children. Parents are concerned about quality-of-life issues such as adequate housing and school quality. Employers should be willing to assist employees to find housing and adequate schools.
• Dependent parents. Another growing issue among the workforce is that of dependent parents. An aging population is putting unique demands upon the working population. Often employees are responsible for the care of their aging parents. In some cases, relocation may affect how the employee provides care for aging parents. Finding care for and assisting in transferring parents may be necessary.

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:

• Moving of personal household goods,
• Packing supplies,
• Optional insurance on household goods,
• Trailer or truck rental,
• Storage for a specific number of days,
• The shipment of cars not used in the move,
• Travel and lodging expenses from the old residence to the new,
• Rental car,
• Tolls,
• Taxi,
• Actual gas costs,
• Lodging in transit, and
• Pet shipping charges.

Non-qualified expenses. Non-qualified expenses may include expenses for:

• Any additional trips from the old residence to the new;
• Pre-move house-hunting expenses, including
  • Gas,
  • Rental vehicles,
  • Lodging, and
  • Airfare.

Temporary housing expenses may or may not be paid.