Policy Changes Alter Employee Relocation Funds

July 27, 2019
Author: ThinkWhy Analyst

The Workforce Mobility Survey conducted by Allied HR IQ, revealed that, on average, relocation packages cost $21,033, while some executive packages averaged $65,333. The amount varied depending on what the employer was willing to give during the process. However, a primary factor has altered the price of these packages for the foreseeable future—and perhaps canceled the possibility of relocating a game-changing employee.

Relocation & Jobs Act

The Tax Cuts and Jobs Act, passed in 2017, did much to benefit the economy. The bill lowers taxes across all incomes while reducing the income tax rate from 35 percent to 21 percent. This significant tax reduction could be one of the reasons for the robust American economy we are currently experiencing. With the positives that spring from the bill, there are also a few negatives; mainly, one that dashes a hiring manager’s dreams of luring top talent from across state lines.

The legislation regulates certain fringe benefits that companies could provide its employees. Specifically, benefits allocated for employee relocation have experienced significant restrictions. Under previous law, certain aspects of relocation, such as the cost of movers, travel and other expenses, were tax deductible line items. The current bill changes that until 2025.

The legislation also eliminates the potential for moving expenses to be reimbursed from employer to employee, thus, making relocation fees too much of a pill for most to swallow. It appears that the problem is not the inability of employers to attract talent, it is affordability.

However, if a company is set on bringing talent across state lines, there may be a way around the recently passed bill. Micheal Sonneblick, tax analyst with Thomson Reuters Checkpoint, offered his input.

“Because moving expenses are not deductible, employer reimbursements for moving expenses are taxable to the employee.” He continued, “the good news is that some employers are looking at grossing up their moving-expense reimbursements to employees to counteract the fact that reimbursements are taxable.”

Plainly stated: this means that an employer would give more money than necessary for the move in order to cover the added taxes.

“The employer might have a blanket policy to gross-up payments to all employees, or an employee might have to negotiate a gross-up when discussing an employment-related move,” he added.

The same bill that set out to lower taxes also made it more expensive for an employer to relocate employees. Although moving expense reimbursements are treated the same as taxable wages, some employers may choose to pay the employee a signing bonus or increase employee’s wages to cover the costs. Reimbursements are also an option.

Even though the change in the tax law may cost the employer more money, the added value and production of a new, sought-after employee more than justifies the expense. With the competition for the acquisition of great talent so strong today, employers are likely to continue to cover these costs for relocating employees. During stiff negotiations with potential hires, a small gross up on moving expenses may be a big win to get the moving vans on order.