Reimbursing Moving Expenses Has Become More Expensive

• December 4, 2018
• Amanda Garnett

With record low unemployment and more bankers retiring every day, it has become common for financial institutions to reimburse moving expenses in order to lure new employees or entice existing ones to relocate between branches.  Unfortunately, the Tax Cuts and Jobs Act (“TCJA”) has made that process more expensive starting in 2018.

Old Law

Under the old law, qualified moving expenses that were reimbursed by an employer were treated as a tax free fringe benefit for employees.  So when they received their reimbursement, they were not required to pay federal, FICA, or state taxes on the amount received and the reimbursement was excluded from W2 wages.

Employers were also allowed a tax deduction for the amount reimbursed bringing down the overall cost to the institution.

New Law

The TCJA suspends the exclusion from income for qualified moving expense reimbursements for the years 2018 through 2025.  So beginning this year, if a company reimburses an employee for moving expenses they are required to withhold taxes on that reimbursement and include the amount in wages on the employee’s W2.

So this could leave employees in a position where they are not fully compensated for their moving expenses on an after-tax basis and may make them less likely to want to relocate.

Grossing Up Wages

For employers that want to continue to make their employees whole when it comes to their moving expenses, there is always the option to gross up the employee’s wages to cover the income tax withholdings.  By grossing up wages, the employer is effectively paying the employee portion of the federal and state withholdings as well as FICA and Medicare taxes.

Though these costs remain deductible to the employer, depending on the amount reimbursed they can almost double the total cost for the employer.

Next Steps

We encourage any institutions that have reimbursed employee moving expenses during 2018 (or plan to before year end) to review how these payments were handled from a payroll tax and withholdings perspective.

There are many nuances of the new tax law.  CLA is here to help.  Please contact us.

Tags: tax, tax reform, Tax Reform | Comments Off on Reimbursing Moving Expenses Has Become More Expensive