The Trump Tax Reform threatens relocation benefits in the U.S.
Is U.S. Relocation Dysfunctional?
Well, compared to its Canadian counterpart, the answer is yes. In the United States, just about every relocation benefit that could appear in a relocation policy is considered taxable by the IRS, whereas most are considered non-taxable in Canada. In the United States, there are only two actions that are non-taxable: the household goods move (including in transit storage of 15 days) and the final trip of travel (no meals, please). That makes American relocation quite a lot more expensive than Canadian relocation on a per unit basis, because American companies have to gross-up many of their relocation benefits in order to keep their employees whole. Grossing-up refers to an employer reimbursing an employee for the taxes paid on some portion of their income. For example, since most relocation benefits are deemed taxable, a company might make a one-time payment of an extra $2,500 through payroll for a house hunting trip of $5,000, in order to cover off the taxes owed.
There is another relocation benefit that can remain non-taxable: the closing costs of a home sale. However, this can only be the case if the participants in the sale of the home follow very specific, well laid out procedures in a process known as Buyer Value Option or Amended Value Option. These steps can be found here. We feel that when you have to create a special 11 step procedure to sell a home to create a tax favourable position for the closing costs, your system is dysfunctional.
So What about the Trump Tax Reform?
The Worldwide ERC has reported that the text for the draft bill – titled the “Tax Cuts and Jobs Act” —“holds alarming news for the mobility industry.”
The bill discusses repealing the two remaining move expense deductions and exclusions – the Household Goods Move and the Final Trip of Travel.
If this were to remain in the final version of the bill, companies will be faced with the need to gross-up even more expenses than they did before.
All Points Relocation Services Canada sees possible chill for total volume of relocations and for movers
The household goods move is often the first or second largest relocation cost. If companies had to substantially increase the cost of each relocation due to the extra gross-up, they could a) reduce relocation benefits or; b) reduce total relocations. Reducing relocation benefits will reduce the number of people that agree to relocate in the first place, thereby reducing volume anyway. Companies could also move to even more lump sum benefit programs since all benefits are deemed taxable anyway. Please see here for our article on determining lump sum values.
This could send a chill through the American relocation and moving industry, reducing total relocations or the quality of those relocations.
All Points Relocation Canada reminds its clients that Trump tax reform does not stop in the United States
Cross-border relocations (both directions) fall under U.S. tax guidelines due to a rule called Forward Attribution. So, the negative effects of this tax bill, if it came into effect as currently written, will raise costs on cross-border relocations as well.
The Relocation Lobby is not loud enough to be heard in Washington and they are not likely to be successful in removing these changes. Repealing the exclusions on the household goods move and the final trip of travel is easy prey and the consequences would be little understood by Joe Public. It is hypocritical that Trump wants to cut taxes on corporations, but is, in essence, raising them on the issue of mobility, when greater mobility of talent is needed more than ever before.