Is relocation allowance considered income?

Expenses of relocating an employee move may be eligible for payment or reimbursement by UCSD. However, due to IRS regulations and tax law, expenses are considered taxable. Is Work Relocation Assistance Taxable? Yes, employers must include moving expense reimbursements in employee salaries, according to the IRS. However, this was not always the case.

If the company uses this method, the lump sum is fully taxable for the employee. The employee should be instructed to track “non-taxable expenses”. A claim for a moving expense deduction may be available in your U.S. UU.

Overnight, corporate relocations became more expensive, hence the renewed importance of the relocation tax. In order for employees to be happy and for relocation programs to work, most employers are choosing to “increase their relocation benefits” to cover the employee's tax liability. Employees choose to relocate for several reasons in addition to receiving corporate relocation packages. As reimbursement, an employee covers the relocation himself and the company returns the money to him once the relocation is complete.

Now, the IRS considers relocation expenses paid as taxable income, meaning it can require employees to pay relocation taxes. To report relocation benefits correctly to the IRS, employers must carefully track relocation expenses. As you can see, relocation is an additional expense for employees, potentially hurting them from experience and discouraging future relocations. Newly relocated employees should interact with your company to ensure they won't have to fund additional tax costs.

If this is the case, some companies may consider offering a gross tax estimate as part of the relocation benefit package. Today, smart employers are restructuring their relocation programs to make them more profitable, using a number of different relocation strategies. Employers often offer relocation reimbursement expenses and bonuses as part of work relocation packages. For employers who rely on their relocation program to acquire and retain top talent, a gross relocation tax is the number one way to avoid a negative employee experience.

While employers are not legally required to provide tax revenues, many companies rely on their competitive relocation packages to garner great talent. The best way to do this is to rely on a third-party relocation management company (or one of their partners) that specializes in this.