Tax code updates enacted at the federal level in late 2017 as part of the U.S. Tax Cuts and Jobs Act led to a number of changes for individuals and businesses. Among the many alterations to the existing tax code was a stipulation that directly affects corporations that want to relocate their staff to a different part of the country.
The removal of the moving expenses deduction means employees can no longer subtract the cost of a work-related move from their taxes. Now, when companies pay for some or all of an employee's relocation, that money is considered income and subject to all applicable taxes. Such a change necessitates a review of current policies and the potential adoption of new relocation strategies.
The changing attitudes around lump-sum moves
"Lump-sum moves could quickly increase in use following tax changes."
Lump-sum moves occur when companies provide a single amount as a reimbursement to employees following a corporate relocation, and could see an increase in use following the tax code changes.
The tax-saving benefits previously realized by paying for the moving costs for household goods directly - an alternative to the lump-sum approach - are no longer available. That means lump sums could rise in popularity.
Our 2018 Corporate Relocation Survey found about a third of all companies plan to expand the use of lump-sum move payments to address the tax code changes.
The pros and cons of lump-sum moves for corporate relocation
The potential for increased use of lump-sum moves means some businesses that aren't familiar with the process may want some more information about their pros and cons. Consider these lists:
Pros of lump-sum moves:
- A straightforward transaction in which the company simply pays the employee a standard amount.
- Less work for the organization, as the employees generally handle the details of their moves.
- Employees can put the money toward the specific expenses they must address to move successfully, even when addressing a very uncommon or niche need.
- It's simple to gross up the lump sum to cover the tax imposed on it to make sure employees have the amount they need to handle the move.
Cons of lump-sum moves:
- It's difficult to gain visibility into how much employees truly spend on moving and make adjustments accordingly.
- It can lead to more work than desired for employees, who have to organize all of the relevant moving details and processes themselves - something that can also have an impact on job performance as they plan and manage a complicated move.
- Employees are under no obligation to return money not spent on moving expenses, as they get to keep the entire lump sum.