If you recently hired a household employee who lives out of town, there is a good chance you have discussed reimbursement for moving expenses. These costs can be a burden for employees, so employers often step in and help with the expenses or cover them completely. Here are some things to remember when it comes to paying for moving-related costs surrounding the hiring of your new employee.
#1: Know the rules.
As a result of the 2017 Tax Cuts and Jobs Act, employers can’t reimburse employee’s moving expenses. Instead, the employer must include moving expenses in the employee’s wages. There is an exception for active-duty military members; they can still exclude moving expenses from their income. So, if you plan to pay your employee approximately $50,000 a year and provide $5,000 additional for moving costs, the employee will now have a taxable wage of $55,000.
#2: Consider a gross-up payment.
If you decide to help with your employee’s moving expenses, you can help cover the extra taxes by increasing the amount of the reimbursement offered. Some ask us to gross-up a bonus/reimbursement check. This tax strategy ensures your employee gets the full benefit promised (after tax) and does not have to feel stressed about how to cover the true cost of relocation with taxes factored in.
You are not required to provide a gross-up payment, but it helps your employee greatly at a time when their life may feel a bit ‘up-in-the-air.’ It also demonstrates you care about them and are committed to making their transition as seamless as possible.
#3: Create an explicit work agreement immediately.
If you plan to reimburse your employees for other expenses, such as transportation/mileage costs, continuing education courses, or something else, be sure you convey it in a written work agreement. Having an agreement in writing ensures everything is outlined clearly, so there is no confusion later. In addition, it allows you to communicate other essential job details, including wages, payment schedule, holidays or vacation policies, privacy policies, and more.
If you are planning to onboard a new employee soon and have questions about reimbursement for expenses or anything else related to payroll or tax filing, contact HomeWork Solutions today! We help people around the country every year with everything pertaining to household employment. Learn more about our service plans and pricing here. We have the answers you need and the expertise you can count on to handle all the details! Call us at 800-626-4829.