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Since the beginning of 2018, employer paid relocation expenses are now taxed as income for the employee (me).

How is this taxed, though? Is it at my normal income rate, or is it considered a bonus and taxed at that rate? Or maybe something else altogether? Since it's taxed income, I assume qualifying expenses can be added as tax deductions in my 2020 filing?

We're about to relocate for a new job, and I'd like to have an idea of how much I'm going to be taxed next year. For the sake of example, assume I'm getting $10,000 in relocation assistance if that matters or helps.

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A bonus is taxed by the IRS as ordinary income. And so is this payment for moving expenses.

Sometimes they allow you to decide if you want it tacked onto a regular check or as a separate check.

  • When done separately it is withheld at a flat rate. That flat rate is currently at 22%.
  • If it is done as part of a regular check it will cause a significantly higher amount to be withheld for that check. That is becasue the IRS tax tables used by employers assumes that the check being processed is typical of all your checks. That means that a person who normally has a gross of $2,000 a check is treated by the tables as making $52,000 a year, but when they get a bonus of $5,000 added to a regular paycheck it assumes they make $7,000 a check or $182,000 a year.

In the end it doesn't matter which way it is withheld. When you file your taxes in April the tax is the same only the amount withheld changes, which will impact your refund or if you have to send the IRS more money.

In some cases one option is better than the other, depending on how much is being withheld on your other checks. This treatment of bonus is frequently confusing. In the end it doesn't matter to your final tax, it just lets you pick which path to take.

The treatment of moving expenses reimbursed by your employer changed significantly in 2018. They are now ordinary income. You will pay Federal taxes, FICA, and if applicable state taxes on the money they reimburse.

  • Thanks. Will the tax rate be the same as a bonus (40%)? – MrDuk Jan 24 at 5:13
  • Is your normal rate 40%? – mhoran_psprep Jan 24 at 11:12
  • No, but when I received spot bonuses before they were taxed at 40%. I'm wondering if this is like a bonus or just additional income. – MrDuk Jan 24 at 12:48
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    A bonus is regular income. The only issue is which option they pick or you pick for calculating the withholding. It could have been around 40% with an old federal flat rate of 25%, and if the state was 7% and FICA was 7.65%. – mhoran_psprep Jan 24 at 13:03
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    @MrDuk: you appear to be confusing withholding and tax. The amounts withheld from payments to you during the year are not your actual tax, only an estimate, which is sometimes wrong. When you file your return the following spring you compute the actual tax; if your withholding was too high you get a refund, but if your withholding was too low you must pay the difference -- and if your withholding was much too low, unless certain exceptions apply, you must also pay a penalty. (FICA on the other hand is flat-rate and thus correct, except if you have multiple employers and exceed the cap.) – dave_thompson_085 Jan 25 at 15:05

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