The Tax Year Ends in 6 Months; Do These 6 Things Now

6.24.2021 | If you do these six things now, you may save your employer (and yourself) a lot of time, money, and frustration.

Relocation tax errors are sometimes discovered only after year-end calculations are completed and employees have received their W-2s. It’s frustrating to discover and time consuming to fix. To help you avoid headaches, we compiled the following list so you can avoid the most common oversights.

1) Use transferees’ 1040 and tax filing statuses, not their W-4s

W-4 forms do not reflect a transferee’s true tax situation. As a result, many employers inadvertently over or under gross up their transferees.  When calculating gross-up, you should not use W-4 marital status and exemption numbers, typically shown in payroll systems.  Instead, we recommend using accurate 1040 marital status and exemption numbers for these marginal calculations and, if necessary, verify the data directly with transferees.  The actual 1040 Federal and state tax returns will use this information when individuals file returns early next year.

2) Don’t forget about these 7 states

Seven states still allow an exclusion/deduction for moving expenses; these states include, Arkansas, California, Hawaii, Massachusetts, New Jersey, New York, and Pennsylvania. If you are accounting for this on your reports, be sure that your system is set up so that gross-up is not calculated for these expenses in these states.

3) Look for COVID-related expenses that may be non-taxable

Expenses that were incurred due to COVID-19 may be considered non-taxable reimbursement and should be treated accordingly. These payments must be considered “reasonable and necessary” and not compensated by insurance or other reimbursement, per Section 139 of the Internal Revenue Code. For more details, check out our blog.

4) Check ALL switch settings in your relocation software

It is very easy for a setting to accidentally be changed by a user. Many settings can significantly affect final calculations. Check the settings now and again before year end.

5) Add to your calendar: A reminder to check for previous relocations

In a few months when you receive YTD earnings information for year-end calculations, verify whether or not they include previously reported relocations. This determines the system’s starting point for calculations and it needs to be accurate.

6) Add to your calendar: A reminder to check expense dates

Weeks into the new year, many people still cite the previous year when completing expenses. It’s best to run an audit report and double check the expense dates.

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