Tax Reform & Relocation: The Price of Paybacks

The tax reform’s impact on relocation has been widely discussed, but there’s one effect that hasn’t been part of the conversation:

What happens when an employee has to pay back a relocation allowance?

This subject was addressed in Pete Scott’s recent article for Worldwide ERC. As he explains, most employers require transferees to repay all or some of their relocation costs if they do not remain with the company for a specified amount of time.
Thankfully, this scenario doesn’t play out very often. But when it does, here’s what you need to know:

  • If the move and the repayment occur within the same year, it’s not an issue as withholding and payroll taxes can be adjusted.
  • Previously, if expenses were paid back in a subsequent year, individuals were allowed to list the payback as an itemized deduction. However, like most relocation-related moving expenses, tax reform has rendered the payback nondeductible.
  • With the deduction lifted, transferees who do not fulfill relocation commitments will shoulder a heavier financial burden and may be less likely to repay employers. Therefore, it’s more important than ever for mobility professionals to clearly outline the terms of payback agreements.

Questions? For more information, contact Orion Mobility tax experts at tax@orionmobility.com.

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