MOBILITY TAX GUIDE

Global mobility tax planning continues to evolve in 2026 as federal and state regulations reshape how relocation reimbursements, gross-up payments, and assignment structures are treated.

While the federal suspension of the moving expense deduction remains in place for most non-military taxpayers, several states still allow moving expense deductions at the state level. This creates complexity for employers managing multi-state relocation programs and payroll reporting.

In addition, adjustments to federal tax brackets, changes in SALT deduction limits, and updates to temporary deductions (including tip income, overtime, and vehicle-related deductions) influence how mobility benefits are taxed and reported.

For mobility, HR, payroll, and finance leaders, the key challenge in 2026 is not just compliance — it is predictability.

For federal tax purposes, moving expenses remain non-deductible for most employees unless they qualify under active-duty military provisions.

However, six states currently continue to conform to pre-2018 federal rules and may allow certain moving expenses to remain deductible or excludable at the state level:

• Arkansas

• California

• Hawaii

• New Jersey

• New York

• Pennsylvania

This creates a layered tax environment where relocation reimbursements may be:

• Federally taxable

• State-deductible

• Subject to varying withholding treatment

Understanding how shipment of household goods, final move costs, and temporary living are treated across jurisdictions is critical to avoiding reporting errors and unintended employee tax exposure.

The 2026 Mobility Tax Guide provides a detailed breakdown of how these rules apply in practice.

Gross-up methodology remains one of the most misunderstood areas of relocation tax.

When employers reimburse taxable relocation expenses, those reimbursements increase the employee’s taxable income. Many organizations provide additional tax assistance — commonly known as a “gross-up” — to offset that burden.

However, gross-up formulas vary widely. Some organizations use flat supplemental rates. Others attempt marginal rate calculations. Few fully account for state, local, and FICA implications in combination.

Small percentage differences in gross-up methodology can significantly affect relocation budgets across large programs.

Accurate gross-up modeling improves:

• Budget forecasting

• Employee experience

• Payroll accuracy

• Compliance documentation

The 2026 guide walks through gross-up concepts, examples, and strategic considerations for employers modernizing their mobility programs.

Short-Term Assignment vs. Relocation: Why Classification Matters

Tax treatment differs substantially between short-term assignments and long-term relocations.

Assignments expected to last one year or less may allow certain reimbursements — including travel, lodging, meals, and incidental expenses — to be treated as non-taxable under accountable plan rules.

However, once an assignment exceeds one year or is expected to exceed one year, tax treatment shifts and relocation rules typically apply.

Misclassification can result in:

• Unexpected W-2 adjustments

• Retroactive tax liability

• Payroll corrections

• Audit exposure

Clear policy definitions and consistent tracking of assignment duration are essential to maintaining compliance in 2026.

Beyond relocation reimbursements, mobility leaders must also account for:

• Multi-state income allocation

• Reciprocal agreements

• Part-year resident returns

• State nexus considerations

• Alternative Minimum Tax exposure

• International assignment exclusions (such as the Foreign Earned Income Exclusion)

As mobility programs expand across states and countries, tax coordination between payroll, HR, and finance becomes increasingly important.

The 2026 Mobility Tax Guide outlines these considerations in a practical, employer-focused format.

In 2026, mobility tax is no longer just a payroll function. It is a governance issue.

Modern mobility programs must integrate:

• Cost oversight

• Audit transparency

• Policy consistency

• Tax logic modernization

• Real-time reimbursement tracking

Organizations that proactively address tax treatment, gross-up methodology, and state-level differences reduce both financial risk and employee dissatisfaction.

The 2026 Mobility Tax Guide was created to help employers navigate this complexity with clarity and structure.

In most cases, yes. Federal rules generally treat relocation reimbursements as taxable income, except for qualified military moves. State treatment may vary.

Currently, Arkansas, California, Hawaii, New Jersey, New York, and Pennsylvania continue to allow certain moving expenses at the state level.

A gross-up is additional compensation provided by an employer to offset taxes owed on taxable relocation reimbursements.

Are short-term assignments taxed differently than relocations?

Yes. Assignments expected to last one year or less may qualify for non-taxable reimbursement treatment under accountable plan rules.

Employers can reduce risk by standardizing gross-up methodology, monitoring state tax differences, documenting assignment duration, and aligning payroll reporting with policy structure.