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Old 04-14-2015, 05:11 PM
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Relocation Assistance Lump Sum Payment Gross Up Question

If a company offers relocation assistance as a lump sum payment and says that it will be grossed up, does that mean that if the amount were $3,000, then the employee would get a payment of $3,000 and not $3,000 minus taxes? From my research, that appears to be the case. It sounds as if the company makes a payment for more than $3,000, so that when it is taxed, the employee gets a check/deposit for the entire $3,000. Is this correct?



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Old 04-16-2015, 02:40 AM
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it depends; basically, it is not free money.


In general, employee expenses reimbursed under an employer’s accountable plan are not considered income to the employee for federal income tax purposes. To be an accountable plan, employer's reimbursement arrangement must require EE’s expenses must be of the type for which a deduction would be allowed ;EE must adequately account to employer for these expenses within a reasonable period of time.EE must return any excess reimbursement or allowance within a reasonable period of time.If not, it’d be treated as nonaccountable plan.
In contrast, employee expenses reimbursed under a nonaccountable plan are considered income to the employee on W2 and are subject to withholding. Then, EE needs to report on form 3903 line 4 the total amount of his moving expense reimbursement that was excluded from his wages. This excluded amount should be identified with code P in box 13 of Form W-2.
If line 3 is more than line 4, EE needs to subtract line 4 from line 3 and enter the result on line 5 and on Form 1040, line 26. This is EE’s moving expense deduction. If line 3 is equal to or less than line 4, it is zero on line 5 (EE has no moving expense deduction). When EE subtracts line 3 from line 4 and, if the result is more than zero, EE need to include it on Form 1040, line 7.



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