Tax Reform Changes for Relocation

On November 16, 2017, the U.S. House of Representatives passed their tax reform proposal by a vote of 227 to 205. Later that day, the Senate passed their tax reform proposal. Both bills repeal the moving expense deduction, as well as the exclusion for moving expenses paid or reimbursed by an employer. If these changes remain in the reconciled legislation, they would become effective January 1, 2018.

In addition to the shipment of household goods, final move non-meal expenses would become taxable in 2018. These changes would force companies to consider including a gross-up provision in their policies to offset the income to employees or other measures to control costs. On the flip side, if overall corporate taxes are reduced, companies may just consider the change a shifting of funds from one bucket to another. There are other potential tax changes in the legislation that could affect duplicated housing interest and taxes, discount points and loan origination fees.

There is also a potential consequence for companies that use “cut-off” dates for expenses toward the end of the year. Unless Treasury creates a transition for 2017 expenses that are reported in 2018, those expenses could become taxable to the employee and require a gross-up to keep them cost-neutral. If you use a cut-off method for tax reporting, be prepared to deal with the extra expense for 2018 if there is no transition created.   

We will keep you informed regarding new developments on this issue.