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Tax Gross up on Newly Taxable Relocation Expenses?

Most surveys show that the vast majority of US companies currently do tax assist on taxable relocation expenses (70-80% depending on the survey). And, of those that tax protect these expenses, the majority (65-75%) base this gross-up on the Federal and State supplemental rates. The IRS yesterday came out with the new tax rates and guidance for the supplemental rate of 22%. https://www.irs.gov/newsroom/updated-2018-withholding-tables-now-available-taxpayers-could-see-paycheck-changes-by-february. The good news for the mobility industry is that the supplemental rate has fallen and is lower than some predicted, the bad news, of course, is that previously deductible moving expenses are now taxable.

One of many big questions is, how will the changes in the new tax law eliminating moving expense deductions mean that companies will change their policies? In particular will policies attempt to keep costs in line with prior years by reducing benefits, or perhaps shifting the tax burden of benefits to employees? Or will companies tax protect (gross-up) those previously tax-free items with no change in benefit?

Over time there will be some shift in policies. For many years the mobility industry has been fighting the trend toward lump-sum policies and now the easiest argument against them, the tax advantages in the direct benefit program is gone. It’s basic economics, the Law of Demand, organizations are unlikely to purchase the same quantities of moving services now that it will be dramatically more costly to provide them. I’d love to hear comments, companies are clearly looking for guidance!

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