Details of a newly proposed tax reform bill, entitled the “Tax Cuts and Jobs Act”, were released by the House Ways and Means Committee on November 2, 2017. The moving and storage industry will most likely be impacted by way of a proposal to eliminate deductions related to moving expenses, as well as the removal of exclusions for company-funded moving expenses. What does this ultimately mean? Most likely, it would mean that employers would be required to provide additional gross up expenses.
David Oltman of Ineo, LLC, a technology, tax and financial services company for the relocation industry, identified five types of currently deductible expenses in a Worldwide ERC press release, and how the proposed legislation could affect them. They are as follows:
- Household Goods (HHG) – 2017 Excludable/2018 Taxable
- Final Move Non-Meal – 2017 Excludable/2018 Taxable
- Duplicate Housing Interest and Taxes – 2017 Deductible/2018 Potentially Taxable
- Mortgage Points – 2017 Deductible/2018 Potentially Taxable
- Loan Origination Fees – 2017 Deductible/2018 Potentially Taxable
It is also important to note that the Tax Cuts and Jobs Act has specific sections repealing current IRS provisions allowing for the deduction of moving expenses from employee wages.
This stands to have a major impact on employers who relocate talent either during their tenure there or as a piece of the onboarding process. In the press release, Oltman states that many organizations use a common accounting practice of establishing a cutoff date for expense submissions during November or December of the calendar year. This allows payroll and accounting systems to reconcile data provided by tax service providers with that of the relocation companies. When submissions are made after the cutoff date, they are typically added on to the first payroll cycle of the following calendar year. In practice, that would mean an employee reports one of the above five expense categories on a 2018 W-2 but the underlying expense truthfully occurred in 2017. The ultimate result, due to internal organization accounting processes, would be that the employee would potentially pay additional taxes.
It may be wise for organizations to examine their practices when it comes to gross up for household goods and final moves expenses and to take into consideration the cascading effects from the addition of that taxable income to an employee’s W-2.
The Tax Cuts and Jobs Act proposes making household goods and moving expenses taxable in 2018. Organizations should consider reviewing their relocation policies, tax policies and budget allocations in anticipation of this.
While the Tax Cuts and Jobs Act is still currently bill, this is certainly something to keep an eye on in the future as its effects not only impact organizations but individuals as well.
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