icon back
Back to blog

Relocation Tax Gross-Up - What You Need to Know

Monday, July 17, 2023
A young lady working on her laptop, figuring out relocation expenses, relocation taxes and relocation gross-up tax

Taxes are everywhere and for everything. Even relocation has not escaped this notion of life. Relocation expenses can and a lot of the time do have tax implications. Many employees and employers do not know what Relocation Tax Gross-Up is and this article aims to change that. Certainly, with corporate relocation on the rise in recent years. But, first, reach out to a professional and do your research (if you are an employer or a curious employee). This article is just to point you in a direction to start your thinking and learning process, it is not a cure-all. With that, let’s start with…

A Brief Look at What Relocation Gross-Up Is

A young man putting a coin into a big, pink, piggy-bank to save for his relocation expenses

To put it lightly everything gets taxed and this includes employee relocation. If relocation tax gross-up is not covered by the employer, then the employee has to cover the tax out of their own pocket. This is why companies use the idea of relocation tax gross-up. It is when an employer will add more to the relocation funds to cover the tax. 

Let's say that relocation for an employee will cost the company $3 000. The tax of this is, to simplify it, $1 500, so the employer will give $4 500 to cover the cost of the relocation and the upcoming tax. Therefore, the employee will not have to pay out-of-pocket for moving due to the company's decision. The employee will get the full benefit of the relocation costs with the tax being paid by the employer. The price is not for spending on the travel, it is just to cover the tax. 

How Relocation Gross-Up Taxes Work

Close-up on relocation expenses and relocation bonus tax papers

The truth is that the state and Federal governments require employers to withhold taxes from the paychecks of the employees. Many corps transactions are taxed and relocation packages do not escape this trend. All relocation costs regardless if they are made by payments through vendors, or are reimbursed have to be reported as taxable income to the employee. The latter is subject to IRS supplemental withholding regulations.

When to Use Relocation Gross-Up for Taxes

Man on his mobile with financial consultant looking at tax forms in his hands

Gross-up tax, also known as tax assistance, since that is what it is, can be a gesture of goodwill. It can help benefit the employee who is relocated long-term satisfaction as well as their retention. Many employees view this as a huge positive in keeping their people's help and avoiding turnovers. The downside of relocation gross-up is that the expenses can be as high or higher than 55% of the taxable relocation funds. Employers do take this into consideration and many seem to opt to keep talent and move them around if possible instead of hiring and starting anew.

Making Relocation Expenses Calculations

A man in a navy suit holding up a huge calculator to count the relocation expenses

There are essentially three methods of working out the tax to figure out the relocation tax gross-up. There is the flat method which is when a flat percentage is calculated on the funds and then added to the funds to cover the tax. The above example is that of a flat rate where the tax is calculated as being 50% of the funds. The downside of this method is that it may not cover the entire tax liability on the employee's side. This is due to the fact that the gross-up is also taxable income. Therefore, it does not comply with the state's and Federal governments' IRS supplemental withholding regulations. 

The other method that companies can use is called the Supplemental Method. This formula is used by employers to compensate for the additional tax liability that is created by the tax gross-up amount. Employers will pay gross-up on the gross-up. It is not hard to see how gross-up tax relocation can reach 55% or above. 

Back to the point at hand, employers will make a list of every single tax rate and add it all up (such as state, SS, OASDI, etc. in percentages), take the relocation funds and times it by the sum (in percentage) of the tax rates. This will give the gross-up amount. Finally, they will take this result and add the taxable expense. While this is a gross-up on a gross-up it may not reflect the tax bracket of the employee with accuracy. This is heavily simplified and an example of this thinking would be:

  • The federal supplemental tax rate is 22%
  • Social Security tax rate is 6.2%
  • Medicare tax rate is 1.45%
  • State supplemental tax rate (changes from state to state): 5%
  • Total is 34.65%

If the employer wants to give $5 000 in relocation funds, then they would have to:

$5 000 x 0.3465 which is $1 732.50

Bring the Gross-up tax relocation up to $6 732.50.

A surprised man with his hand over his mouth standing deep in thought

However, this method would only work completely if all the taxes are accounted for and worked out. It would be best to speak to a professional about this or any methods in working out the gross-up tax since making a mistake can be a gigantic bad take for any company when it comes to the IRS.

And, the last method is the Marginal Method which is used by CPA or full-service relocation companies. It incorporates tax-on-tax calculation with the difference being that it takes into account the employee's income as well as the IRS Form 1040 tax filing status.

When it comes to working out gross-up it is important to know and understand the methods by which to work them out. It is worthwhile to hire a professional to aid in this process so that all mistakes can be avoided. The last thing you want to do is make an error while figuring out how to make a move. 

Shyft Can Help with Corporate Move or Personal Move

 Four people at a carnival standing next to each other, happy that they have relocated for work

Thinking about relocation taxes as well as relocation expenses can be a hustle. This is a common case when it comes to anything done with money, certainly so when it comes to moving. On the plus side, what does not need to take up a lot of your energy and time is organizing a move or making sure your employees are using their funds for relocation. This is because there is an organization that can aid you in keeping track of funds when it comes to your employee relocation. And, this same organization can also help organize your personal move for you. We are talking about Shyft, the world's first tech-driven moving platform.

Shyft offers a relocation service where you can use its secure app to keep track of how your employees are handling their relocation funds. Furthermore, you can also send more funds to them directly and securely.

A woman putting up to the link for relocation services

Plus, you can also get in touch with us to learn more. The other service we offer is personal relocation. This means that we take on the organizing of your entire move for you. You will have less stress as well as save money while we help make sure that your moving experience goes smoothly. You can learn more on our site as well as get in touch with us by filling out our short form and letting us know when we can call you.

Likewise, you can get in touch with us through our secure, mobile app, which is free-to-download, Shyft Next. This app is needed for your Move Coach from Shyft to contact you. This will be a video call that will happen at the time that you say. Therefore, you are already saving time by not waiting around for us since you know exactly when the call will occur.

It is during this video call that you get to learn more about what we do, as well as ask your Move Coach any moving-related questions you may have. During this session, you will also give a virtual tour of your current home. This is so your Move Coach can create your inventory list without you having to wait for them to step into your home. You can show the inside of one drawer and closet, all the rooms in your home, and that is it. Within half an hour from the end of this video call, you will get the inventory list which is already 95% accurate.

The Accurate Inventory List with Your Help

Three co-workers with their arms up, posing for the camera, outdoors happy to bond after work

Through the Shyft Next app, you can update the inventory list to 100%. You do this by adding items that may have been overlooked, removing stuff that you have reexamined, and making notes on certain items that you want the movers to pay attention to. This is how you take the inventory list from 95% to your 100% inventory list. When you are done and finished you send your 100% inventory list to your Move Coach. It will be used to source moving quotes from Shyft-verified, vetted, and trusted moving companies that Shyft has in their secure network.

It is through this process that we gather three or more moving quotes and every quote is from a different moving company. The quotes as well as information about the companies are sent your way. You can compare the costs, and what they offer through the Shyft Next app to make your life easier. All the quotes that you get are fixed, and there are no hidden costs. When you decide on the moving company you want to handle your move you let us know, and we lock them down straight away. And, if you decide to alter something on your inventory list you can do so without it affecting the fixed moving quote from the moving company. What you see is what you will pay till the end of the moving progress.  

Furthermore, if you are in the market for an online, secure marketplace then you should check out our secure Home & Lifestyle, online marketplace. It is on our site and there is a range of products for you to buy as well as services for you to use. The physical products are delivered directly to your new home. Plus, you can even buy office supplies online. Also, all the products and services come with a discount. So you will save time and money by going through our marketplace.

While you are locking down the process of relocation tax gross-up, Shyft will be helping you handle your moving process and making it a money-saving, time-saving, smooth-sailing experience. Get in touch today and let the process begin, and also remember to check out what we offer when it comes to corporate relocation.

Three co-workers during a team building with their arms around each other, facing the camera and smiling

Corporate Relocation Made Easy with Shyft