Question

A company reimburses an employee $5,467 towards moving costs when the employee was relocated to an office in a different city.

What is the impact on the employment income of the employee?

Answer 1

Answer A multi-national company for an opinion regarding tax-treatment of the expenses reimbursed by the company on the re-location of an employee from his present location to the place of employment with the company. Of late, a number of multi-national companies and other big Indian companies have, by way of incentive, have started to make reimbursement of expenses incurred by an employee on re-location of his residence, etc. for the purpose of his new employment. These companies have been taking a number of new employees on their rolls and in the competitive environment prevailing in the job market of certain highly skilled employees, such employees expect that all the expenses incurred by them on the shifting of their families and house-hold from their earlier place of residence to the place of new employment must be reimbursed by the employer.

Exclusion from Income of Qualified Moving Expense Reimbursements. Per a transition rule in the new law, reimbursements an employer pays to an employee in 2018 for qualified moving expenses incurred in a prior year aren't subject to federal income or employment taxes.

The culture of transferring or relocating employees due to business restructuring, wherein the reasons can be a new project/ assignment or better opportunities is more visible than ever. Some of these transfers provide an individual the option of moving with the family, or the entire team under a department or in an office to be relocated.

Transferring to a new city has its own cost of living and commuting. Therefore, the additional expenses that arise due to relocation are reimbursed by the employee, either directly to the concerned people or indirectly through salary.