From the Northeastern Section of the ACS, focusing on career management and development

May 2019
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Tax Law Change. Relocation and “Gross Up”
Filed under: Recent Posts, Position Searching, Job Offer (Situations), First Year on Job, Legal matters, Observ. Trends
Posted by: site admin @ 8:32 am

Al Sklover shared one of the impacts of the 2018 tax law
change that allowed the mega wealthy a tax cut is to tax
as income any relocation reimbursement by employers.

The article recommends that new or relocated employees
ask for “grossing up” that is having extra sum of compensation
to pay for the taxes due.

One Response to “Tax Law Change. Relocation and “Gross Up””

  1. site admin Says:
    Note from Al Sklover:
    Examples may include
    (a) relocation reimbursement, which is now fully taxable to the employee,
    (b) educational reimbursement that may be partially or fully taxable to the employee,
    (c) entertainment or travel reimbursement that may be partially or fully taxable to the employee, especially if in excess of certain allowable limits, and
    (d) automobile expenses.

     So, for example, if an employee is asked to move his or her residence for a year or two from Boston to Belgium, moving expenses (for themselves and their family) is considered non-deductible for them, and if the employer reimburses them for that expense, all of the reimbursement is considered income to the employee, who must pay tax on it. 
    Another example: if your employer asks you to take courses to enhance your work skills, and the cost in one year exceeds $5,200, the excess amount, if reimbursed by your employer, is considered income to you, and you must pay tax on it. 

    So what’s the solution? Ask your employer to not only reimburse you for the actual expense, but to also pay you the amount you will have to pay in tax on that reimbursement. That is called “Gross Up” for tax purposes, or “Tax Gross Up.” While it takes a little “gymnastic arithmetic” to figure out exactly how much “Gross Up” payment to you is needed to precisely “Gross Up” tax that you will have to pay, that calculation can be done by your employer, its payroll service, or your own tax advisor. The reason that it is a bit complicated to calculate “Tax Gross Up” is that the employer should not only (a) pay the additional tax due by the employee, but (b) should also repay the employee for the new tax to be due on the original reimbursement amount, as well. As an illustration, if the employee incurs a relocation expense of $1,000, and the employer reimburses the employee the $1,000, the employee may have to pay income tax on the $1,000 received of about $300. But wait a minute: then the employee has to pay tax on that $300, as well, which might come to yet more income tax of $90. So, the employer should also “Tax Gross Up” that amount, too. (I told you it was a bit complicated.) So, whenever a work-related reimbursement is taxable to you as income, or you believe it may be, ask for “Gross Up” for tax purposes, or “Tax Gross Up” as it is also commonly called. If you do so, there will be more money in your pocket after tax time, and, hey, there’s nothing wrong with that!!  

    Sklover offers a Model Memo titled “Request for Tax Gross Up” to send to your employer. Like all of our Model Memos and Letters, it shows you “What to Say . . . and How to Say It.”™ 

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