The Tax Cuts and Jobs Act is now the law of the land, and with it, mobility tax law has changed. It is time for action!
Bristol would like to summarize the main mobility related considerations and some recommended next steps. Please note that the following represents Bristol’s interpretation, and should not be construed as specific advice without full assessment of your company’s unique circumstances.
The cost of relocation is going up. For many companies, overall mobility spend is expected to increase by roughly 10-20%. Please educate your internal stakeholders, and budget accordingly. For perspective, remember: The Corporate tax rate now @21% lowers the overall cost of doing business. Encourage your company’s holistic view and strong commitment to talent mobility!
Moving expenses are no longer excludable: All van line invoices for household goods shipment and storage will now be taxable. Automobiles and pets, too. We’d argue this is the biggest impact of the tax bill. The gross-up on van line invoices may add an estimated 50%-70% to your accustomed household goods shipping costs. Final move trip expenses (e.g. en route airfare and lodging) will also be taxable.
Simplification of policy: Along with the repeal of the tax deductions comes lesser complexity: There is no longer a need to consider the IRS time and distance tests to “qualify” a move.
Some good news: The flat supplemental withholding rate has been lowered from 25% to 22%, slightly offsetting increased gross-up costs.
Impact on transferees: Recognize that individual impact will vary. The restructuring (and generally lowering) of tax brackets, raising of the standard deduction, new rules on child tax credits, elimination of state and local tax deductions, new treatment of mortgage and HELOC interest deductions, among other provisions provides a mixed bag of effects depending on individual variables such as income, family size, state of origin, state of destination, amount of itemized deductions, and more. Home purchase assistance in the form of mortgage subsidy programs and “bridge loans” for equity advances may also be affected, at least partially.
More good news: Traditional relocation home sale programs (e.g. BVO, AVO, GBO) are not affected. Transaction costs of the traditional process managed by third-party RMCs like Bristol will continue to enjoy their tax-shielded status.
International Assignees: Generally, U.S.-outbound expats will get a small break (while companies’ cost will increase) as a result of reduced hypothetical tax deductions. U.S.- inbound assignees’ situations will differ depending on whether they are on their own for tax purposes, or are subject to the company’s tax equalization policy, on top of myriad individual variables.
RECOMMENDED ACTIONS (Included, but not limited to):
* Budget / reset expectations / raise awareness internally to prepare for 10-15%
increases in mobility expenditure.
* Consider and clarify your company’s position on gross-up for the newly-taxable
* Adjust cost projection methodology – update for 2018 tax rules.
* Review lump sum methodology (if applicable); adjust as necessary
* Consider whether you will maintain your own time or distance (e.g. 50 mile) test for approving a move for relocation benefits.
* International Assignees: Consider offering enhanced tax counseling through your
third-party tax firm to ensure they are up-to-speed on any personal impact they may
* Review and revise all written policies, letter of assignment templates, employee
communication documents for language relating to all areas (particularly taxability)
affected by the new rules.
* Consult with your corporate tax and legal advisors for a complete perspective and professional advice.
* Consult with your payroll providers (external or in-house) for dialogue and mutual
understanding about updating of systems and timelines.
* Talk to Bristol!
Bristol is eager to connect with you in order to take advantage of the new opportunities and respond to your specific questions. Our consulting and support services may include a complete evaluation of your relocation policies, and/or a review of individual aspects such as household goods shipping provisions, cost projections and budgeting, internal and transferee communications, potential recalibration of lump sums and other allowances, expatriate hypothetical tax calculations, and/or other appropriate policy changes.
Please contact your Bristol Account Director to further discuss your needs and ways in which we may help, or reach us at firstname.lastname@example.org. We look forward to partnering with you!