I was told by my employer that relocation expenses paid by a third party will be subject to withholding requirements based on the Tax Cuts & Jobs Act, and that they’ll be deducted from my next paycheck. Please explain what this means.

by Susan E. S. Howe, CPA | Dec 27, 2018

I am not clear on the following:
“During the past year, HealthTexas Provider Network/Baylor Scott & White paid for relocation expenses on your behalf, which includes all noncash items, such as relocation of household goods, house hunting travel expenses, relocation travel expenses, etc. These moving expenses will be taxed accordingly based on the Tax Cuts & Jobs Act passed in December 2017, effective Jan. 1, 2018, whereby all moving expenses are subject to the withholding requirements for federal income tax (FIT), Social Security tax (FICA), and Medicare tax. Taxes on the amount listed below will be deducted from your next paycheck, dated Dec. 28, 2018. Please consult with your tax advisor for further clarification. Taxable amount: $9,713.07.” 
What does this mean?

Moving expenses are no longer tax deductible by individuals pursuant to the Tax Cuts & Jobs Act of 2017, so employers are no longer allowed to exclude from W-2 income these benefits paid to or on behalf of their employees. Your employer is letting you know that relocation expenses paid to you or on your behalf to third parties totaled the amount listed, and that they will be withholding tax to cover this amount of income from your final paycheck in 2018. Unless your employer is "grossing up" or paying these taxes on your behalf, this means your take-home pay will be reduced by the amount of taxes withheld to cover this income, and your W-2 wages will include this amount as well as the tax being withheld.

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Answered by: Susan E. S. Howe, CPA, is principal of Howe Advisory in Strafford, Pa.

The responses are based on the limited information provided by the questioner and apply the laws and regulations at the time of posting. Other options could arise as rules and regulations may change over time, including but not limited to the passage of the Tax Cuts and Jobs Act of 2017. They are intended to provide general information, not specific accounting or tax advice; they are not intended or written to be used and cannot be used for the purpose of avoiding or evading taxes or penalties under the IRS code or regulations. Views expressed do not imply an opinion of the PICPA, its officers, directors, employees, or members.
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