The tax reform bill signed by President Trump on 22 December will no doubt affect every company subject to U.S. tax laws that sponsors employee relocation. U.S. lawmakers considered several policy changes that could impact corporate relocation programmes, policies and budgets and also affect an employee’s willingness to accept a relocation assignment. Many of these changes were included in the final, approved version and they will go into effect January 1, 2018.
Moving expense deduction is eliminated
Currently the cost of moving household goods as well as certain other move-related expenses are deductible, and reimbursement for these is excludable from income by employers. Under the approved bill, the deduction and exclusion will be eliminated. Employers that want to make their employees “whole” in these situations will need to increase gross-up reimbursements to reflect an employee’s increased personal tax liability.
While that provision will no doubt increase the cost of relocating employees, there is also some positive news to report regarding the final bill:
- The home sale capital gains qualifying exclusion is unchanged
Currently if home sellers have lived in their home two out of the five years prior to the sale, capital gains from the sale are fully excluded from taxation. Taxpayers can take advantage of this exclusion once every two years. Under earlier versions of the bill, these allowances were scaled back significantly, but the final bill does not change the current law.
- The child tax credit is increased to $2,000 with the income phase-out limitation starting point increasing to $400,000 for married, filing joint and $200,000 for single
- Corporate tax rate is reduced
One of the cornerstones of this legislative effort was to scale back the corporate tax rate to levels more consistent with those in other countries. The final bill reduces the overall corporate tax rate from 35% to 21%. Those savings could help companies mitigate the impact of increased relocation costs driven by other provisions in the bill.
You can review additional information provided by the professional trade organisation Worldwide ERC®, which recently issued this Mobility-focused summary of the legislation.
Steps You Can Take
Overall, companies will need to adjust certain Mobility programme policies and implementation processes in the coming year to address provisions in the law. We recommend that Mobility programme managers discuss these matters with their payroll team, tax providers and other key stakeholders to determine the best way to address the changes within their organisation. The team at Graebel is also prepared to support companies as they navigate these changes.
The Tax Reform Bill’s impact on Mobility practices will be one of the topics addressed at the upcoming insideMOBILITY® Americas Summit in Denver February 26-28, 2018.
Graebel Companies Inc., and its affiliated entities are not tax or legal advisors. This information is provided for informational purposes and doesn’t constitute tax or legal advice. Individual tax circumstances may vary. You should consult with your tax advisors to discuss specific tax situations and how the tax law changes may affect your organisations.