Managing Tax Gross-Up during a Corporate Move | My Move

Managing Tax Gross-Up during a Corporate Move

Author: Dawn Allcot

Managing tax gross-up for employee relocation packages is probably one of the largest administrative hassles for HR departments handling corporate relocations in house. If you're not familiar with the terms but you've just introduced an employee relocation program, you should be.

What Is Tax Gross-Up?

Tax gross-up is a process to manage tax liabilities for relocating employees. If you offer employees a lump-sum relocation package, they will be liable for taxes on those benefits. Similarly, they must pay taxes on any money reimbursed from relocation expenses. Although some moving expenses are tax-deductible, not everything is covered. Tax gross-up helps make sure employees come out even and their relocation package actually covers their moving expenses.

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Three Forms of Tax Gross-Up

  1. Simple Gross-Up: Using this method, you can reimburse or pay employees the amount of their relocation benefits package, plus a fixed percentage designed to cover all or most of the taxes. Depending on the employee's tax bracket, this might be an extra 28 percent, 30 percent or even 35 percent. Because the grossed-up funds are also taxable, employees may not break even, but it will be close.

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  2. The Inverse Method: This method of grossing up relocation benefits also takes into account the grossed-up amount, so employees have less of a tax liability following their move.
  3. The True Up Method: Deemed the most accurate method of gross-up by CPAs and corporate relocation firms, this method calculates tax gross-up at the time the relocation benefits are administered and again at year's end. Any discrepancies can be corrected by adjustments on the employee's W-2, resulting in more accurate reimbursement and tax payments. Typically, a CPA or your full-scale relocation management company (RMC) will handle tax gross-up if it's calculated in this manner.

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Benefits of Tax Gross-Up for Relocating Employees

Retention rates following a move hinge strongly on a relocating employee's satisfaction with the moving process. Grossing up taxes makes sure employees are compensated accurately for their moving expenses, without adding to their tax liability in April. Valued employees work harder and better, and grossing up taxes on relocation packages is one way to show employees that you value their contributions during a relocation.

Illustration by Kena Ravel