Is Relocation Allowance Taxable Income?

Relocating an employee can be a costly endeavor for employers, and due to IRS regulations and tax law, expenses are considered taxable. So, is work relocation assistance taxable? The answer is yes. Employers must include moving expense reimbursements in employee salaries, according to the IRS. In the past, employers could offer a lump sum to cover relocation expenses, but this is no longer the case.

Now, the IRS considers relocation expenses paid as taxable income, meaning employees may have to pay relocation taxes. To report relocation benefits correctly to the IRS, employers must carefully track relocation expenses. In order to make relocation programs more profitable and attractive to employees, many employers are choosing to “increase their relocation benefits” to cover the employee's tax liability. This can help make the experience more positive for employees and encourage future relocations.

Additionally, some companies may consider offering a gross tax estimate as part of the relocation benefit package. 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. To ensure employees don't have to fund additional tax costs, it's best to rely on a third-party relocation management company (or one of their partners) that specializes in this.