In short, yes. Before the Tax Cuts and Jobs Act of 2017, relocation benefits were not considered taxable income for employees. Employers could also deduct relocation expenses incurred when relocating their employees – win-win for both parties. Unfortunately, that’s all changed now. Employers have lost the ability to use relocation as a tax deductible, and employees have to pay taxes on any relocation benefits received.

To overcome this and keep relocation packages competitive, one option is to cover these additional taxes that employees incur by grossing up the benefits by the amount of extra taxes incurred.

If you are relocating employees internationally, then you also need to consider any tax implications in other countries. In particular, if you are relocating an employee outside of the US, US citizens must still file US tax returns regardless of where they are living and earning. However, the foreign earned income tax credit should minimise or eliminate the amount of tax owed.

It is often considered best practice to provide tax equalization if relocating employees abroad, so that they continue to pay taxes as they usually would and the employer picks up any extra.

For more information on taxable relocation benefits, take a look at our article on the Relocation Benchmarking Policy.

Starting afresh in a brand new city sounds challenging enough but, starting a new chapter in an entirely different country is a whole other ball game.

It’s estimated that 40% of expat assignments and relocations end in failure and the country which American’s struggle with the biggest culture shock? The United Kingdom! A mix of culture shock and not acclimatizing can be held accountable for this.

• Complex logistics: flights are the easy part, what about visas? Can this person legally work in the country they’re headed to? Is there a customs and tax policy that they have to adhere to in their home country and what impact does it have on them? There is definitely more of a need for hands-on support when dealing with an international relocation.
• Length of service: most international relocations are fixed-term contracts and this can impact the type of benefits and policy.
• Acclimatizing: making friends as an adult and acclimatizing within a new set up is hard. This is one of the reasons why global relocations do have a higher risk of failure with a costly impact.

We live in a world where there are many different social and cultural practices, having a policy in place to support an international colleague during their move can help to minimize the risk of failure. 

We offer full guidance and an abundance of options when it comes to relocating an international employee. You can find full details of this on our Global Relocation Section.

• Buyer Value Option (BVO)
• Guaranteed Home Buyout Option (GBO) 
• Amended Value Option (AVO)
• Realtor Rebate Program

While most relocation expenses are no longer tax deductible for employers, one tax protection does remain: the Buyer Value Option (BVO), and this covers what is usually the highest expense in a relocation process: home sale costs. While it is up to employers whether or not to assist with selling costs, for those that do, a BVO program will “tax protect” these costs by treating them as business expenses for the employer. This then eliminates the need to “gross up” the employee’s benefits package by the value of the home sale costs, as the employee never incurs these costs in the first place.

A Guaranteed Home Buyout Option (GBO) also provides tax protection against realtor commissions and closing costs. It removes the risk for the employee of selling their existing home. This can speed up relocation, as the employee does not need to wait for an offer on the open market. In a GBO, the relocation company purchases the house from the employee at fair market value, before later selling on to an outsider buyer.

If a relocation company is used to buy the home through a GBO and an outside buyer then offers a higher price, an Amended Value Option (AVO) can be used. The relocation company will match this offer, and then sell the home to the outside buyer, provided the higher offer is a bona fide offer made in good faith. This saves the employee time, money and a lot of work.

At ARC, to prove our commitment to our customers, we offer an Affinity Rebate on all eligible home sale transactions. This rebate is contingent on the value of the house, reaching up to $3,000. The cash rebate is paid within a week of closing, as a free program to help employers maximize recruitment and retention efforts.