The short answer is “yes”. Relocation expenses for employees paid by an employer (aside from BVO/GBO homesale programs) are all considered taxable income to the employee by the IRS and state authorities (and by local governments that levy an income tax).
How much will my relocation bonus be taxed?
Relocation Lump Sum Tax For example, if an employee receives a $3,000 relocation bonus and the IRS collective tax rates (Federal, State and FICA) total is 30%, $900 is taken out of the bonus to cover the tax and the employee receives $2,100.
How do relocation bonuses work?
The Relocation Bonus Some employers have turned to the opposite approach of a relocation package: awarding cash benefits, also called relocation bonus, lump sum or cash allowance, without accompanying services. Under this arrangement, employees are given a fixed sum and directed to make their own arrangements.
How much tax do you pay for relocation?
Jim’s new employer has offered a lump sum package for his relocation. His gross lump sum package is $5,000 and, if Jim falls within the 32% income tax bracket, the net amount for the relocation lump sum would be $3,400 – so $1,600 is lost in tax.
How does relocation work with a lump sum?
The company uses whatever means they see fit (normally based on records of previous relocation expenditure within the company) to establish the amount of the lump sum, then they give the decided upon amount to the employee. The employee doesn’t have to use all, or any, of the money for relocation.
When to use grossing up for relocation payments?
Grossing up is when an employer will increase the amount of the relocation package to help the employee cover the cost of their income tax bill. It’s more commonly used for lump sum payments however, it can be applied to most forms of relocation packages as demonstrated in the examples below.
Which is the best method for relocation reimbursement?
In the past five years, lump sum has become the most popular method of relocation expense reimbursement. Considering how easy it is to administer, and the flexibility it offers to employees, it’s not hard to see why so many companies use it.
