Early last month, we discussed how the Tax Cuts and Jobs Act made what we hoped was an inadvertent change to a certain benefit for federal employees. Under previous law, workers who relocated for their jobs were allowed to deduct reimbursements for certain moving and travel expenses using the Withholding Tax Allowance and Relocation Income Tax Allowance computation. The TCJA removed those reimbursements from the computation while leaving the employee’s home sales’ excludable tax status unchanged.
At the time, Federal News Radio estimated that some relocating federal employees were facing tax bills of $3,500 to $6,000 on the reimbursement money they received, which is now considered taxable income. As a result, many workers were declining reassignments or simply leaving federal service.
A coalition of federal employee associations saw this as an “unintended policy outcome of tax reform” and sought to have the Treasury Department and the General Services Administration reinstate the tax deductions when they updated their policy recommendations to reflect the TCJA.
Now a decision has been made. The tax deductions have not been reinstated, but the GSA has authorized federal agencies to reimburse employees for “substantially all” of the increased tax liability for expense reimbursements, either directly or indirectly, according to the GSA.
In other words, reimbursements for many travel and relocation expenses can still be reimbursed, although the reimbursement checks are taxable. However, agencies can choose to reimburse their employees’ tax liability for those reimbursements.
The policy is retroactive to Jan. 1, 2018, so people who have already relocated can now seek reimbursement for the tax. The GSA bulletin covering the policy is in effect until explicitly canceled or superseded.
Examples of reimbursable relocation expenses include:
- Lodging during travel to a new duty location
- Airfare for traveling to a new duty location
- Mileage if you use your own vehicle to travel to a new duty location
- Transportation of a privately owned vehicle
- Temporary storage and shipment of household goods
Mileage for travel to a new duty location will still be reimbursed. The GSA will continue publishing a moving expense mileage reimbursement rate so that relocating employees can be reimbursed and have a basis for their tax estimates.
The tax treatment of certain homes purchased and sold under relocation services company supplier contracts was not changed by the Tax Cuts and Jobs Act.