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June 11, 2018

The impact of tax law changes on corporate relocation for employers

  • Corporate relocation
Businesses are planning their next move in response to tax law changes that affect corporate relocation strategies.

Corporate relocation is a long-established and effective strategy for bringing valued employees to the geographic areas they're needed most. However, changes to the federal tax code could have a major impact on the way businesses utilize this process.

Recent tax law updates - part of the U.S. Tax Cuts and Jobs Act - won't eliminate corporate relocation as a useful process for all businesses, but it could significantly influence costs and the specific methods companies use to plan and pay for such efforts, as well as their scale.

What do the tax law changes mean for employers?

The exact results of the change aren't yet totally clear, but many businesses believe their costs for corporate relocation will go up. Our 2018 Corporate Relocation Survey found about 90 percent of businesses believe costs will be affected by the tax code alteration. A majority of those companies think costs related to the process will increase, especially from 2019 to 2025.

The federal update removed the moving expenses deduction from the tax code through 2025. This means individuals can no longer take a personal deduction for moving expenses. What's more, moving expense reimbursements won't be excluded from taxable income calculations.

"Federal tax code changes could have major impacts on businesses relocating employees."

Perhaps the most telling result is that nearly three-quarters of businesses (74 percent) agree that changes to their corporate relocation policies are necessary. Nearly six in 10 companies - and seven in 10 of those larger than 5,000 employees - plan to gross-up taxable relocation benefits to combat the change. No other potential policy change has close to 50 percent potential adoption, although about a third of all businesses plan to expand the use of lump sum payments to address the tax code alteration.

For companies with the budget to handle such changes, it's very possible that few consequences will occur outside of the potential for increased spending to offset employee tax burdens following relocations. However, businesses that don't have such a luxury will face more difficult decisions related to reducing the frequency of employee relocations.

Although circumstances ranging from employee earnings to the cost of moving mean no two corporate relocations are alike, employers will either have to spend more or offer less in the way of services - or leave employees to pay a greater share of the cost.

Atlas recognizes the fluid state of corporate relocations as companies develop initial changes to their policies. With so much in flux, we're proud to be a reliable, experienced and knowledgeable longtime corporate relocation partner for a wide variety of businesses and excited to build new relationships.

With broad diversity in our service lines, we're also ready to adjust our processes to better meet the needs of businesses as they're affected by these tax updates. We're committed to maintaining our corporate mover value: whether it means staying the course or changing alignment to provide the best possible services in light of our partners' changing needs.