Grossed-up Relocation - how to file in 1040?

Question

My employer relocated me in 2006 and provided tax assistance. According to my moving expense information sheet, the assistance had 4 parts - federal tax, state tax, OASDI and medicare.

My understanding is, this is tax my employer paid to IRS on my behalf, similar to tax withholding on paychecks. For example, I should be able to subtract the amount of federal tax assistance from my total tax liability on 1040, because this part has already been paid. But where should I put it in 1040? Is it line 65 "2006 estimated tax payments and amount applied from 2005 return"?

Answer 1

Your understanding is incorrect. Here's how it goes. The IRS lets you deduct certain moving expenses from your income as an adjustment. This is done on the bottom half of the front page of the 1040 form (after filling out Form 3903). Only certain expenses are allowed (moving van, temporary storage, etc.) Some expenses are not (temporary housing, closing costs, etc.).

ALLOWABLE expenses: If your company pays or reimburses you for allowable expenses AND they include that amount in box 1 of your W-2, you will be able to deduct them from your income when you fill out your 1040. If your company does NOT include the reimbursement in box 1 (the more likely scenario), you will NOT be able to deduct them. The general law: if you don't claim something as income, you don't get to write it off either.

NONALLOWABLE expenses: If your company reimburses or pays you for nonallowable expenses, this amount is treated as compensatory income and you do not get to write it off on form 3903. You will have to pay all taxes (federal, state, local, SS, Med) on this "income". What companies do to help compensate you for having to pay taxes on it is they "gross up" the reimbursement to cover the tax. Example:

Allowable expenses = $10,000
Unallowable expenses = $2,000

They will pay you $12,000. $10,000 will not be added to box 1 of your W-2 (it will show up in box 12 with a "P" next to it) and $2,000 of it will be added to box 1 which will increase your tax liability. Let's say your company assumes your overall tax liability is 30%. They will add an additional $600 to your payoff to cover your tax. So, instead of paying you $12,000 (of which $2,000 is taxable), they will pay you $12,600 (of which $2,600 is taxable). Ironically, even the gross-up is taxable income.

Good news! All of this has been figured out for you. All of the income you need to claim will be in box 1 of your W-2. All of the taxes paid to the IRS on your behalf will be in box 2. All you need to do is enter this information like you always do.

Unfortunately, you'll still need to fill out a 3903 if the company reimbursed your for allowable expenses (look for a "P" in box 12 of your W-2). If they reimbursed you for ALL allowable moving expenses, none of it will move to the front of your 1040. If they did NOT pay for all of your allowable moving expenses, the residual amount will move to the front of your 1040 and lower you income.

Good luck :)

Answer 2

Grossed Up

Answer 3

you do not Relocation funds are totally taxable as wages truly some the prices that you paid related to you flow may be deductible yet no longer all of them are. See form 3903 prices related to transferring you and your stuff are deductible yet no longer a lot else. you won't be able to easily placed the quantity of the relocation funds as a transferring rate. So, no, you're literally unlikely contained in the right route. Edit: >>>>I particularly have a stipulation that announces that I particularly could pay it again if i stop before 2years. could that impact how i fill my tax this year?<<<< No.

Answer 4

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Answer 5

All of it should be already included in your W2.

Answer 6

And the same question comes up again