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EMPLOYER TAX BRIEF
Reel in job candidates with a relocation package
Competition among employers for many types of employees remains fierce. For hard-to-fill positions, you might need to expand the search beyond your organization’s local geographic area. You may even have to offer financial incentives to lure applicants.
Although signing bonuses are an obvious choice, a strong relocation package could give you an edge in reeling in the best job candidates.
Costs to consider
The purpose of a relocation package is to ease the financial and logistical strain of moving on a new hire. This benefit can range from a simple cash reimbursement to a lavish array of perks most often reserved for top execs.
When creating a package, it’s critical to establish a firm budget for the costs you’re willing and able to cover. Generally, relocation packages include coverage for moving services and transportation (such as airfare). But there are many other perks you could add, including:
- Packing and unpacking services,
- Storage expenses,
- Short-term housing, and
- Spousal employment assistance.
The size and shape of a relocation package tends to depend on an employer’s industry. The benefit you offer must be competitive with those of similar organizations in your area or it probably won’t give you the hiring edge you’re looking for.
Tax impact
Relocation expenses are currently deductible for the employer and taxable to the employee, similar to how bonuses are treated.
Before the Tax Cuts and Jobs Act (TCJA) of 2017, the way that moving expenses were reported — and the tax impact — depended on the type of plan that an employer used. “Accountable” plans, which followed certain IRS rules, allowed employers to fully deduct payments while employees weren’t subject to taxation, including payroll tax. This made such plans highly favorable from a tax perspective, though they required more administrative effort.
Under a “nonaccountable plan,” pre-TCJA relocation payments were treated similarly to how a bonus would be reported and much like how the payments are now treated. That is, they were taxable compensation subject to both income tax and payroll tax. Employees could, however, deduct moving expenses — which substantially mitigated the tax impact.
The TCJA eliminated the moving expense deduction for all employees other than active-duty military members. Keep in mind, though, that this TCJA provision is scheduled to sunset after 2025.
Going the extra mile
Nowadays, employers often have to go the extra mile to win over optimal job candidates — many of whom could live hundreds or even thousands of miles away. Our firm can help you decide whether a relocation package is a good benefits choice for your organization.