Category Archives: Hot Topics

The New Tax Reform Act and Relocation/Cause and Effect

The finals days of 2017 saw the House/Senate pass the most sweeping change to US tax code in decades;  the Tax Cuts and Jobs Act.   The act, now signed into law, includes changes that will impact relocation and talent mobility programs.

Perhaps the biggest change to the tax code is the elimination of the exclusion/deduction for moving expenses such as the shipment of household goods, storage, and final move costs.   For corporations that gross up for taxable reimbursements, this will result in thousands more in tax gross-up dollars per transferring employee. Written policy language will also require revision along with necessary adjustments to relocation budgets to allow for the increased cost of tax gross up.  The average company cost for moving/storing household goods of transferring employees and final move is over $14,500.  It is important to remember that corporations can still deduct moving expenses it pays to or on behalf of employees.

Prior to passage of the Tax Reform Bill certain moving expenses were considered excludable/deductible if certain criteria were met. The criteria included meeting the time and distance tests.  The transferring employee needed to commence work in the new job (at the new work location) and work full-time for at least 39 weeks within the first 12 months after the move.  He/she also needed to demonstrate that the new place of employment was at least 50 miles away from the old home than the old place of employment.   The new tax reform law effectively negates the need for the above criteria since moving expenses are no longer deductible/excludable.

 Additional Relocation-Related Tax Reform Implications

  • The mortgage interest deduction was reduced to $750,000 from $1,000,000 for mortgages originating on or after December 15, 2017. This is likely to affect transferring employees looking to purchase homes in higher cost of housing areas.  Recruiting talent to relocate to these areas could become problematic.
  • The state and local tax deduction is now capped at $10,000 in 2018 through 2025. This again could impact employees transferring into higher tax states as the cap will decrease the ability to deduct these items.
  • Tax Rates and Income Brackets:  The law’s seven federal tax brackets will now have the following rates:

Relocation America International is actively working with our clients and prospects to insure their programs are fully compliant with the new tax law and relocation policies are updated to reflect the new tax reality.

The above information is for general information only and is not presented as tax advice. Please consult with your tax advisor prior to making decisions and taking any action.  For more information contact us at mobility@RAInternational.com or visit www.RAInternational.com

Proposed Tax Reform Holds Significant Impact for Mobility Industry

Adding long-awaited detail to the proposed U.S. tax reform legislation, text for the bill —titled the “Tax Cuts and Jobs Act”was released November 2, 2017 by the Ways and Means Committee. “The draft bill holds alarming news for the mobility industry,” said Worldwide ERC® President and CEO Peggy Smith, SCRP, SGMS-T.

“The moving expense deduction is one of numerous deductions and exclusions that were proposed for repeal. Should this aspect of the bill be a part of final legislation, repeal would include the deduction, as well as the exclusion for employer-paid moving expenses. And employers would be faced with additional gross-up expenses.”

David S. Oltman, chief compliance officer, Ineo, LLC provided insight on five categories of expenses that could be impacted by the proposed tax legislation that would affect most Worldwide ERC® members:

  1. Household Goods (HHG) – 2017 Excludable/2018 Taxable
  2. Final Move Non-Meal – 2017 Excludable/2018 Taxable
  3. Duplicate Housing Interest and Taxes – 2017 Deductible/2018 Potentially Taxable
  4. Points – 2017 Deductible/2018 Potentially Taxable
  5. Loan Origination Fees – 2017 Deductible/2018 Potentially Taxable

“Those seeking clarification in the proposed tax law about the repeal of moving expense deductions will see that it covers excludable moving expenses as well,” said Oltman. He noted that, per §1310 of the proposed Tax Cuts and Jobs Act, I.R.C. §§ 217, 3121(a)(11), and 3401(a)(15), among others, are repealed.  “These cover the deductibility of moving expenses and the exclusion of deductible moving expenses from wages.  So the new bill eliminates both the deductioneliminating IRS Form 3903—and the company exclusion. In addition, W-2 Box 12 letter ‘P’ is no longer applicable.”

The five items cited here are clearly deductible or excludable under current 2017 law, but are mostly all taxable under the proposed 2018 laws.  Oltman noted, “If any of those five expense types find their way onto a 2018 W-2 – and let’s say they were incurred after a November cut-off but before December 31, 2017 – the transferee might end up owing taxes that truly would not be due.” Oltman also raised another concern: under the proposed legislation, W-2c forms in corporate America would present a significant issue.  Said Oltman, “Well over 90 percent of companies ‘cut off’ expenses between November 1st to December 15th, to allow their accounting and payroll systems time to accept the final passing of relocation accounting data provided by most tax service providers and relocation management companies.  For the past 20 years or more, expenses submitted after the ‘cut-off date’ are added to the company’s first payroll pass in the following calendar year.  The reason this process and administrative procedure has worked well for this period of time is that the treatment of moving expenses and the general tax rates have remained relatively the same.” Oltman pointed out that under the proposed legislation, should it be effective January 1, 2018, if the provided expenditures that fall under the five expense areas noted above were incurred on or before December 31, 2017, they would be treated as deductible/excludable. If those same expenditures occur on January 1, 2018 or later, they would be potentially taxable.

Oltman also provided this example if the bill moves forward: “Since household goods and final move expenses will become taxable in 2018, and most companies will gross them upassuming an average HHG invoice of $30,000 and an average gross-up of $25,000an average transferee would have $55,000 of additional taxable income added to their 2018 W-2.  This will grow their 2018 AGI by $55,000; significantly increasing the chances of the transferee losing many potential tax credits and other deductions that might ordinarily be available to them.  In turn, most companies will want to gross up their employees for those lost credits. Most companies who move employees might expect to see their average gross-up costs increase approximately $9,000 per move, or an approximate 60 percent increase from last year.  Corporations will need to budget and communicate accordingly, and companies’ gross-up and tax assistance policies will surely need to be revisited based on the proposed tax reform bill.”

Source: Worldwide Employee Relocation Council 

 

About Relocation America International

Relocation America International is a full service relocation management company dedicated to providing innovative relocation services, value-added support, and superior customer service to clients relocating families domestically and globally. Visit http://www.RAInternational.com for more information.

Transferee and Client Surveys: Your Secret Weapon

The purpose of any quality service questionnaire is to not only discover how satisfied your clients are with the level of service provided, but, to also discover new and exciting approaches to improve client service and quality. Questionnaires can also be an accurate method of measuring supply chain performance which is critical to the success of any relocation management company.

Studies have shown that companies with the best client satisfaction have one thing in common: they all really care about their clients and allot resources to ensure they have a top quality customer feedback questionnaire.

Here are some key tips to remember when managing quality assurance as it relates to transferee surveys:

The response rate:

For a transferee survey campaign to provide a solid return on investment, you should always strive for as high a response rate from your respondent transferees as possible. The lower the return rate, the less reliable your results are due to non-response bias. After all, how can you accurately boast over the top service if your clients are not actively saying you are? Among the most common reasons for a achieving a low return rate are:

  • Poor follow-up
  • Irrelevant questions
  • Delay in timely survey submission

Keep it short and simple

Refrain from inundating your clients with so many questions that are irrelevant and waste their valuable time. Any industry that delivers a service has some sort of survey they inevitably ask their customer to complete. As a result, the importance of asking a focused set of questions which more fully help to benchmark your performance is critical. Try to limit your questionnaire to between 5 and 7 questions. Keep in mind that every question should serve a purpose. Here is a small sampling of critical questions that could be asked on any quality service questionnaire:

  • How happy are you with the speed and efficiency at which we are able to respond to your requests?
  • How happy are you with our attention to detail and the professionalism of your consultant?
  • How would you rate your overall experience with our services?
  • How would you rate your most current relocation as compared to past relocations?
  • How would you rate the following service partners (temp living. vanline etc.)?

Offer pre-selected answers for your questions

As part of the short and simple approach we recommended earlier, offer pre-selected answers rather than relying on clients to provide long form answers to survey questions. This approach makes it easy for your clients to fill out the questionnaire quickly, which means a level of convenience for your clients that, in turn, will drive more responses.

It is important once all the survey data has been collected and analyzed to try to learn from the answers and to change your service respectively. By comparing survey results over time, service providers can learn important trends about performance—both good and bad– and make appropriate adjustments.

About Relocation America International

Relocation America International is a full service relocation management company headquartered in Southfield, Michigan dedicated to providing innovative relocation services, value-added support, and superior customer service to clients relocating families domestically and globally. Visit http://www.RAInternational.com for more information.