If relocating is the third most stressful event in a person’s life, then there’s no surprise the amount of gray area perceptively surrounding the industry that strives to define and streamline it.
We’ve collected the 10 most common myths about U.S. domestic relocation and dispelled them, once and for all, to shed light on the thousands of successful and stress-free moves experienced by our customers each year.
Relocation companies make money buying and selling houses.
Relocation companies provide a market-based offer for an employee’s home based on the appraisal criteria set forth by the Worldwide ERC®. Typically, two appraisals are ordered from independent companies, and the results are averaged for an offer on the employee’s home. Relocation companies do not make a profit on buying and selling the home, but rather are paid a fee for services regardless of the property’s eventual sales price.
If a relocation company makes payments to vendors, it’s not a taxable reimbursement to the employee.
All payments made on behalf of an employee to a vendor can be considered taxable income to the employee. The exceptions to this are household goods move costs, final move costs to the destination, and any costs associated with a qualified home sale program.
Note: This article was written in 2015, prior to the Tax Cuts and Jobs Act.
Home sales are taxable if they don't meet the IRS '50-mile test.'
Home sales fall under a different IRS tax rule than other relocation expenses, specifically Revenue Ruling 72-339. And while other relocation expenses use the “50-mile test” to determine tax protection, the test does not apply to a home sale program. Organizations can treat home sales like any other business expense.
Short-term assignments lasting longer than 365 days do not need benefits taxed until day 366.
Short-term assignments less than one year are treated like any other business trip. However, once an assignment is required beyond 365 days in duration, travel reimbursements are taxable. If, for example, a short-term assignment was designated as 400 days in duration, all travel expenses are taxable from day one. If the assignment was originally designated as 325 days in duration but at day 250 is changed to extend beyond 365 days, then at day 250 all travel reimbursements become taxable. You cannot wait until the 365th day to account for taxability.
Relocation companies’ service provider fees can vastly increase an organization’s relocation spend.
Provider fees typically account for only 3 – 5% of total relocation spending. While a small amount in comparison to total cost, these fees can reap great rewards in cost savings, program structure, and ensuring tax compliance.
Employees receiving a lump sum benefit will need to find rental arrangements on their own.
Even if the transferring employee is not receiving destination assistance as part of their relocation package, there are still options that can help them when searching for a rental. Before an employee even sets foot in the new destination, they can begin their search online. However, if the employee is having difficulty finding or securing a unit on their own, the relocation company can set them up with a national rental finding agency or local brokerage to assist in the search. Each will offer different levels of service for a set fee or percentage of the monthly rent depending on location.
Finding a rental is easier and less time consuming for my employees than purchasing a property.
Signing a lease may be easier than closing on a new home, but that doesn’t mean it is less time consuming. Renting, especially in larger cities, is in high demand. Units go on and off the market in a matter of minutes in some areas, so it is important for employees to have as much time as possible to find a unit that will meet their needs.
Relocating with pets will be easy for employees moving within the U.S.
Relocating pets within the U.S. is much easier than relocating outside the U.S., but each state still has its own rules and regulations that must be followed. Finding a new home can be challenging when dealing with city breed restrictions or housing restrictions (such as apartment, condo, or HOA restrictions). Another thing to keep in mind is transporting a pet is a non-taxable expense per IRS relocation guidelines, but the employee will still need to figure out the best means for transporting their pet(s), whether that is personally by car, air, or a pet transportation service.
Business travel is not taxable for the employee and their spouse.
The only business travel expenses that are not taxable are the employee’s. Spousal travel expenses would be considered taxable. The only way a spouse’s travel expenses could be classified as tax exempt is if that spouse is also an employee of the company traveling for business purposes.
Employees are aware of the cost of living differential between their old location and new destination.
Cost of living can vary drastically between locations, which is why it is important to discuss with employees early on about what they can expect in their new destination. If the cost of living is higher, they will need to figure out what they are looking for in a new home and how much they want to spend. Offering a Cost of Living Allowance (COLA) to employees moving to higher cost of living areas can also help with their transition by gradually assimilating them into their new higher cost of living area.