House Republicans passed the Tax Cut and Jobs Act, their proposed tax reform plan, before the Thanksgiving break, and shortly thereafter the Senate Republicans introduced their own version of a tax reform which was approved on November 29th. The $1.4 trillion tax package is now on the Senate floor, but reports this morning indicate the vote has been delayed, hitting snags related to the expansion of the Federal deficit. Once approved, the two bills will need to be reconciled between the House and Senate, with a goal of getting a final proposed bill to the President as quickly as possible.
Impact of Tax Reform on HR and Corporate Mobility Pros
The proposed tax reform is sure to have a significant impact on HR and corporate mobility pros.
Following are some key things you need to be aware of as you close out the year with any pending corporate moves, and also as you think about budget allocations and revisit corporate mobility policies for the coming year:
Say Goodbye to Moving Expense Deduction. Under the proposed legislation, moving expenses will no longer be excludable and/or deductible. If approved, all moving expenses (including household good shipments) paid to an employee will be taxable.
Increase Your Tax Gross-Up Allocations for 2018. In the proposed legislation, the average tax gross-up is estimated to be approximately 65 percent. That’s a significant change from existing tax policy, where a $10,00 household goods move requires no gross-up. If passed, you’ll need to allocate your budgets accordingly.
Changes to Capital Gains on Home Sales. Under the current law, an individual may exclude the gain on the sale of a primary residence if they have occupied the home in two of the last five years prior to the sale. Under the new proposed regulations, this exclusion can only be claimed once every five years, requiring an individual to have occupied the primary residence for five of the last eight years prior to sale. The new proposed regulations also include an exclusion cap for high-income individuals (e.g. adjusted gross income in excess of $500,000 married filing jointly, or $250,000 single).
Home Sale Transaction Related to Relocation. The good news is that the proposed regulations don’t impact the sale of an existing home—it will remain nontaxable.
Explore Adding Tax Consultation Services for Employees. With these proposed changes to the tax law, there is bound to become much more that goes into the process of recruiting top talent as well as in relocating existing employees to other corporate locations. It’s to be expected that employees won’t make decisions quickly without the benefit of exploring the tax consequences of corporate relocation and/or accepting job offers that require relocation.
Timing for a Household Goods Move Matters. If you’ve got corporate moves in the works, it makes good financial sense to get them executed before year end. If the proposed legislation goes into effect, in order to be excludable and deductible, the household goods moving expense must be incurred and the shipment delivered before December 31, 2017, regardless of when it is paid.
The proposed U.S. federal tax reform legislation represents significant potential changes in store for HR teams as it relates to their recruiting efforts, as well as for corporate mobility pros as they work with employees contemplating and/or navigating the process of corporate relocation. We’ve prepared a deeper dive into the proposed legislation and specifics on things corporate and global mobility pros should consider that you can access.
Download: Tax Cuts and Jobs Act: The Potential Impact to Corporate Mobility Programs.
As always, we’ll keep monitoring the progress of this proposed legislation and will keep you posted as more information becomes available.