Approximately 25,000 federal employees relocate each year for their jobs. Until the passage of the Tax Cuts and Jobs Act (TCJA), many of the costs relating to relocating such as travel, household goods shipment and temporary lodging were eligible for an income tax allowance. This is no longer the case, because the TCJA eliminated this relocation income tax allowance.
Prior to tax year 2018, federal and civilian employees received an income tax allowance for certain relocation expenses. Beginning with tax year 2018, taxpayers can no longer take this allowance, with a notable exception of members of the military who must move because of a military order.
Relocation Income Tax Allowance
The relocation income tax allowance reimburses employees for additional federal, state and local taxes incurred when you are reimbursed or paid for specific transportation, travel and other expenses that can’t be excluded from your gross income for federal tax purposes. Those reimbursements or payments subject to federal tax include trips for house hunting, temporary lodging and household goods storage for more than 30 days.
Reimbursements that are not taxed include household goods shipment and storage for the first 30 days, lodging and travel to reach your new home and shipment of mobile homes. A withholding tax allowance is issued each time you receive reimbursement for a covered expense to pay for your federal tax reimbursement. The withholding tax allowance is subtracted from your relocation income tax allowance. You are taxed on reimbursements in the year of reimbursement, not the year you incurred the expense.
Understanding the Tax Forms
Each agency has its own relocation income tax allowance tax forms. Typically, the employee must include their former and present duty station on the form, as well as their tax filing status. The employee and spouse must include their W-2 information and total gross compensation for the current year. Generally, a relocation income tax allowance does not reimburse state taxes, unless the employee is subject to taxes in two states at the same time, and both taxed the relocation income tax allowance income and didn’t provide a credit or some type of adjustment for the double tax.
If one state made an adjustment or credit, the relocation income tax allowance is based on the tax rate of the state that didn’t make an adjustment or offer a credit. If local taxes are involved, the employee must list them, including the name of the municipality, the tax percentage and the type of tax incurred. Married employees who file jointly must also have their spouse sign the relocation income tax allowance tax form.
Federal Relocation Income Tax Allowance 2018
The Tax Cuts and Jobs Acts, signed into law on Dec. 22, 2017, eliminated the relocation tax allowance for federal employees. Taxable relocation expenses now include lodging and air travel expenses while traveling to a new location, mileage for using a personal vehicle for such travel and shipment of household belongings.
This has created a tremendous burden for relocating federal employees, and the General Services Administration has authorized agencies to pay relocation income tax allowances as well as withholding tax allowances to cover most of the increased tax liability for relocation expense reimbursements for those employees transferred "in the interest of the government" for permanent duty from one official station or agency to another, according to a General Services Administration memo.
However, this does not include federal employees who are separating from service, whether due to retirement or resignation, and it does not apply to new hires.
2019 Federal Relocation Tax Allowance
For tax years 2018 through 2025, employees cannot take the relocation income tax allowance (RITA), unless new legislation is passed. Active-duty military personnel who must move because of a military order must apply for RITA the year after they receive taxable travel pay. For example, if you receive the pay in 2018, you can file for RITA after you file your 2018 income tax return in 2019.
2018 Federal Relocation Tax Allowance
The 2018 tax year marks the end of relocation income tax allowances for most employees. If, however, your employer reimbursed you in 2018 for moving expenses resulting from your 2017 move, you won't be taxed on this reimbursement.
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