Date: February 28, 1994
Subject: Change in Treatment of Relocation Allowances for Income Tax Purposes- Withholding and Reporting
Reference: SM 340.6
The Office of the Secretary has issued Financial Administration Memorandum 94-005 dated January 18, 1994, regarding the Revenue Reconciliation Act of 1993, Public Law 103-66, enacted August 10, 1993, which changed the tax treatment of most relocation allowances. The policy, which changes Survey Manual Chapter 340.6 and the supporting handbook 340.6.A.H, is outlined below:
A. Any moving expense reimbursement which covers costs that the employee actually incurred prior to January 1, 1994, (December 31, 1993 and prior) will be processed under the rules applicable to payments made in 1993 and prior.
1. Real estate, house-hunting, temporary quarters, etc., will be considered deductible, up to the $3,000 ceiling.
2. Shipment of household goods on a commuted rate basis (payment made to the moving company in 1993 or prior) will be reported as income, not subject to withholding (this is a deductible reimbursement).
3. Shipment of household goods and the first 30 days of temporary storage authorized on a Government Bill of Lading will not be reported as income unless the payment is being reported on the 1993 W-2.
4. The taxable portion of all relocation reimbursement made after January 1, 1994, will be subject to the increased withholding rate of 28 percent for Federal Income Tax.
B. Before any reimbursement for relocation expenses incurred in 1994 may be considered non-taxable or deductible, the relocation must meet the revised distance test of 50 miles.
1. The employee's new principal place of work must be at least 50 miles further from the employee's old residence than his old residence was from his old place of work.
2. Failure to meet the distance test will result in all payments, including shipment and storage of household goods, being reported as taxable income.
C. Enroute transportation and reimbursement for lodging expenses incurred for the employee and family are not to be reported as income. All reimbursements for meals and miscellaneous expenses are to be included in taxable income.
D. Reimbursements for real estate, lease termination, and similar expenses are taxable and must be included in taxable income.
E. Payments to a third party relocation service contractor for real estate expenses, including reimbursements for direct expenses for cancellations, are not taxable and will not be reported as income.
F. All reimbursements for house-hunting, temporary quarters, and storage of household goods over the 30 days are taxable and must be reported as taxable income. The $3,000 exclusion for deductible expenses has been removed along with the provision which allowed the employee to deduct the majority of the moving expense reimbursements.
This IM is canceled upon issuance of a revised SM 340.6.