Every year mobility departments field this question. This year, however, a larger number of transferees are reaching out to their employers as they compare their 2018 filings with previous ones.
They’re wondering why their tax refund wasn’t larger or, worse yet, why they owe money.
The assumed cause? Their relocation expenses were not grossed up sufficiently.
While this may be true in some cases, it is more likely that tax reform played a significant role. In fact, as the filing season came to an end, the IRS announced that the average refund was down by roughly 2%.
When tax reform was implemented, many people experienced:
- Small increases in take-home pay
- Smaller withholding amounts deducted from pay
- W-4s that were not updated to reflect all tax changes
These factors affected the tax situations of many, not just relocating employees. Transferees should also consider the following, which may not be linked to relocation:
- Capital gains on the sale of investments
- Changes in spousal income (if filing jointly)
- Changes in deductions
- Under withholding on regular income
If none of the above information explains a transferee’s tax situation, the employer may conduct a gross-up audit to determine if additional money is owed to the employee.
Regardless, it’s important to educate all employees about tax reform and what factors determine the type of refund – or tax bill – a staff member receives. For all employees, the IRS recommends using its online tax withholding estimator for a “paycheck checkup.” This tool will help ensure the right amount of tax is withheld.
By providing employees with accurate information and tools, you can stave off questions and – most importantly – help staff members avoid tax-related surprises.