If a company gives you relocation expenses, is it taxed?

Question

I'm trying to figure out the numbers on a couple of job offers that I have. One offers a nice relocation lump sum, "minus applicable taxes." What does that mean - taxes that I have to pay? Should i figure that I won't see the entire lump sum? What is the tax rate for relocation bonuses? I just want to make sure that I make a smart decision, and don't end up in the hole over moving expenses - I think that I'll need every last penny of the amount they offered.

Answer 1

As you have described the offer, the payment you receive for relocation will be fully taxable. In addition, you will pay Social Security (paid for up to $97,500 in wages) and Medicare taxes on the amount paid to you.

Any expenses you have for moving will be reported on Form 3903 and your income will be adjusted for those expenses. You do not have to itemize to receive this adjustment.

So if your relocation money equals your expenses, you have no increase in taxes due to the relocation money. If the relocation money is more, your taxes increase. If the relocation money is less than your actual expenses, your taxes will decrease.

"Minus applicable taxes" means that the relocation check will have an amount withheld for income taxes, which you may or may not get refunded to you per the above description.

Answer 2

Bonuses and other irregular payments are subject to a statutory withholding rate of 25%. The bonus will be added to your other income and reported on Form W-2 at the end of the year, along with the taxes withheld. It is taxed along with all of your other income when you file.

If you are directly reimbursed for deductible moving expenses, there are no tax consequences for you and the employer gets a deduction for the business expense.

If you are paid a lump sum for relocation and do not have to account to yoru employer for how it was used, it is taxable income to you and payroll expense for the employer. It's treated as an irregular payment as noted in the first paragraph above. You may take a deduction on Form 3903 for your moving expenses if you meet the time and distance requirements and this will potentially reduce your tax liability for the relocation payment.

Answer 3

Bonuses are taxed at the same rate as any other income from work, such as salary or wages.

Some relocation expenses, such as the cost of transporting yourself, your car, and your furniture (once each, in one direction only) can be deducted under certain circumstances (you have to work for a certain number of weeks and the job has to be a certain distance from your old home) if you are not reimbursed for them. If you are, reimbursements for otherwise deductible expenses are not taxable. Some relocation expenses, such as pre-move househunting trips and temporary lodging after you arrive but before you find new permanent lodging, are no longer deductible, even if unreimbursed. Reimbursements for them are fully taxable.