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Do I pay taxes on direct billed relocation expenses? North Carolina

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  • Do I pay taxes on direct billed relocation expenses? North Carolina

    I just received the W-2 from one of the employers I worked for in 2011. I worked for the employer only from April through November, so I have since left the position. I received a relocation package that was 100% direct billed to the employer; I incurred no costs whatsoever. Upon seeing the W-2, the full amount of the relo expenses were added to my gross wages and noted in box 14. Therefore, the tax burden was pushed off onto me. Everything I have seen in my research into the issue is that any direct billed expenses of the employer should not be treated this way (i.e added to gross wages).

    Am I really liable for the taxes or is my previous employer misreporting the W-2?

  • #2
    This is maybe complicted. Expense reimbursement (including expenses paid direct by the employer) is not automatically non-taxable. General expense reimbursement looks at something called the Accountable Plan rules to see if the employer is allowed to treat the expenses as non-taxable. The employer is never legally forced to treat expenses as non-taxable but it is generally in both the employer's and employee's benefit for the employer to do so if legally possible.

    Legally there is no difference between the employer paying the third party directly or paying you. The taxability rules do not look at that.

    I am going to include a pointer to the actual rules on moving expense handling. A general rule of thumb is the direct cost of the one way move of people and goods is non-taxable, although there is a lot of fine print associated with that. You might want to be sure just what the rules are before talking to your employer.
    http://www.irs.gov/pub/irs-pdf/p521.pdf

    However even if the employer can legally treat the expenses as non-taxable, they are not legally forced to do so. What you are left with is claiming deductions on your 1040. This is better then nothing, but not a perfect solution for you.

    Just a thought but can you try talking to payroll and ask them what they are doing? No threats or demands but a calm reasoned dialog. There is always a chance that they have a good reason for what they are doing. Past that as a long time payroll person, I am never impressed by people who never read the IRS publications but think that they can get there own way by screaming at me loud enough.
    "Reality is that which, when you stop believing in it, doesn't go away".
    Philip K. **** (1928-1982)

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    • #3
      I think the best answer is to run it by a professional tax preparer or CPA. Will be less expensive than dealing with an audit.
      Bob Bollinger, Attorney
      Board Certified Specialist in NC Workers' Compensation Law
      Charlotte, NC

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      • #4
        Thank you very much, DAW, for your lengthy response. Looks like I'm going to have to talk with a CPA to get this sorted out.

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        • #5
          Update - I spoke to a CPA about the issue. After receiving a breakdown of the expenses from my former employer, only half of my relocation package is deductible. He thought it was unusual the company would not offset the tax burden in some manner and recommended I speak to somebody in labor law. Since there is a sub-forum here for labor law, I posted about the situation. See thread here.

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