Key Notes for the Mobility Industry
The Tax Cuts and Jobs Act (H.R. 1) authored by Texas Congressman Kevin Brady was signed into law on December 22, 2017.
As the dust settles on the first major rewrite of the tax code in more than 30 years, relocation professionals, transferees, and movers are watching closely to determine its impact on the mobility industry. The majority of changes for individuals are effective from January 1 of this year through December 31, 2025. Most U.S. taxpayers will see a reduction in federal tax, but the savings will vary based on individual factors. Guidelines and limitations for itemized deductions have been overhauled and encourage a shift to a standard deduction. The change that has everyone in the mobility industry on high alert is the impact on the taxability of moving costs.
Company-paid moving expenses are now considered taxable income for everyone except active members of the military. The changes include household goods moving costs, the first 30 days of temporary storage, and all final move costs. Lump-sums and employer-reimbursed moving costs are no longer deductible on an employee’s federal tax return.
One key tax benefit that did not change is qualified home sale programs that follow the 11 key elements outlined by Worldwide ERC. (Visit worldwideerc.org and type “eleven key elements” in the search box.) This component remains a tax benefit as excludable income to employees.
To reduce the impact to the employee, employers are considering grossing up company-paid moving expenses, lump-sum amounts, and other moving expenses. Many Cornerstone Relocation Group® clients have made the decision to gross up for 2018 so they may determine the financial impact and see if their policies should change for 2019. A quick rule of thumb for assessing gross up costs is to multiply net moving expenses by 1.45 to 1.60 (rates may vary based on the state).
“A prospective client recently told me her company’s tax decrease would more than off-set the increase in gross up costs,” says Mark Rabe, Senior Vice President, Global Development, Cornerstone Relocation Group®. “The challenge for them was to get the budget corrected to handle the expense. She said move volume might even increase as the company pushes for more growth, in which case the relocation division may need to fight for more budget.”
It will take some time to know the full impact of the new law. We are apt to see clarification and technical corrections from tax authorities in the months ahead.