Employer Paid Relocations - Tax Implications

Tax Law Requirement - Employer-paid relocation costs are required by Federal and State tax law to be treated as imputed income. Prior to the TCJA of 2018, Federal and State treatment was the same. However, the TCJA requires that payments made directly to vendors (eg van lines) on behalf of an employee be imputed as wages. California is one of the few states that does not automatically adopt federal tax law. As a result, expenses are treated differently. See summary table below. BFB G13 is UC guidance on relocations.

Expense	Taxable	UCPath Earn Code
Moving household goods	Federal	FBT (Fringe Benefit-Taxable)
Moving professional library/lab	Exempt
Travel to new residence	Federal	FBT (Fringe Benefit-Taxable)
Meals while traveling to new residence	Federal/California	MVE (Taxable Moving Expense)
Temporary Lodging/ meals	Federal/California	MVE (Taxable Moving Expense)
House hunting	Federal/California	MVE (Taxable Moving Expense)
Storage	Federal/California	MVE (Taxable Moving Expense)

Please be aware that ALL move/relocation expenses and reimbursements are taxable to the new employee. Due to Payroll reporting deadlines, claims for employee moves, or trips including taxable payments/ reimbursements must be fully approved within the same calendar year in which the employee is taxed. If the expense report is submitted but not approved by late October/early November (specific deadline will be announced in the coming months) the expense report will be held and processed for payment in January 2024.

Impact on employee pay - Imputed income must be added to an employee’s regular pay cycle to be correctly reported and subject to withholding. Income tax withholding will be based on the graduated income tax withholding tables driven by the individual’s W-4. The addition of imputed income to a regular pay cycle may drive the withholding for the entire paycheck into a higher Federal withholding percentage. It can have a significant impact on net pay. Net pay impact can be calculated using the tool available at: https://www.paycheckcity.com/

Process

There are two systems where relocation costs are reported.

Aggie Expense– Supply Chain Management (SCM) reviews each report with relocation costs to break out expenses subject to Federal and California taxation.
- Reports that are under $3,000 are added to the following pay cycle. Reports over $3,000 are held until the quarterly process (discussed below).
Aggie Enterprise – AE payments are typically those to third-party vendors. Quarterly AE transactions using Natural Account 508100 (Relocation Benefits Expense) are reviewed to identify costs attributable to employee relocations. In the Description field, include the employee’s name and employee ID for tax reporting purposes.

Imputed income implementation:

Monthly: Aggie Expense reports under $3,000 are added to the following pay cycle. Any reports over $3,000 are held until the quarterly process (discussed below).
Quarterly: The AE transactions and Aggie Expense reports over $3,000 are combined for processing. Due to the volume of recipients, TC&C works with each Dean/Vice Chancellor/Vice Provost's office to review and validate costs.
- Employee totals are sent for verification and information about:
  - Laboratory or library relocation costs included in the reports. These costs are NOT TAXABLE (because tax law excludes them as a business expense to the University).
  - To reduce financial burden, employees can request to distribute the reportable amount over a number of pay cycles (excluding December); this is subject to review and payroll deadlines. Although, the imputed income cannot cross tax years.

FAQ

What is the Impact to my Paycheck? What is meant by "imputed income"? What is the impact?
Imputed income occurs when the value of a transaction is added to your taxable wages and subsequently, the corresponding taxes are withheld from your paycheck. Imputed income will reduce your net pay by the amount of the corresponding taxes on the paycheck it was recorded.
What will the tax rate be? How do I know how much I will be taxed?
The tax rate will be the same as the tax rate of the employee's income, based on the W4 on file as well as the employee’s FICA eligibility. An employee can utilize the tax withholding estimator https://www.irs.gov/individuals/tax-withholding-estimator to determine the impact of the imputed income.