Tax Reform’s Impact on Corporate Relocation

January 3, 2018

HR managers have an extra New Year’s resolution for 2018 – figuring out all the implications from the recently enacted tax reform. There are a number of changes that affect employee relocation. We’ll be covering many of these topics in greater detail in the upcoming months, but here is an overview of the larger changes HR and relocation professionals can expect.

No More Moving Deduction

For those overseeing employee relocation, easily the biggest change is the removal of the moving expense deduction. For years, employees could deduct many of the expenses stemming from their move, but starting in January 1, that deduction goes away for all moves except military ones.

The good news for HR managers though is there’s no longer a need to help employees who’ve relocated in the past year figure out if they’re eligible for the moving expense deduction, and if they are, which expenses are deductible. This will inevitably save HR time throughout the year.

Forgive your employees if they don’t share your excitement. This deduction has been around for some time, gaining popularity over those years among people who’ve relocated for a new job. It’s important to make sure any employee who relocated last year understands that this deduction no longer exists.

Reconsidering Modified Sums

Where this can complicate matters for HR professionals and their respective organizations is when the employer traditionally has covered those expenses that were previously deductible. This has become a common practice with modified lump sums – where employers would cover the previously deductible expenses and give employees a sum of money to cover, at least a portion of, the remaining expenses. While the tax reform also reduces the corporate tax rate, this will no longer be a cost-savings strategy for businesses.

New Tax Brackets

Often, a new job means a change in salary, and for those who were previously on the cusp of a new tax bracket, that has meant a higher tax burden. While that is still true in 2018, most of the federal tax rates have been lowered – meaning a lower tax burden come tax time. For example, a jointly filing, married couple making $150,000 (combined) had a 28% federal tax rate in 2017. Under the new law, that couple’s tax rate drops to 22% until they surpass $160,000, which then would only bring it up to 24%.

In most cases, this aspect of the law should be a welcome change to those who could have faced a higher tax burden.

There’s no doubt the tax reform will bring about many questions for businesses and relocating employees as the year unfolds. If you have any specific questions as to how the tax reform impacts your relocation strategy, let us know!

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