Update to 2018 Tax Reform – Some States Bucking Federal Reform
By Bobbi Maniglia
Jul 26, 2018
Following up on our February thought leadership piece on Tax Reform, there have been some recent developments that indicate some states may not follow the Fed's lead.
In February, to help Human Resource and Procurement professionals stay abreast of the new tax reforms, we posted the following blog: 2018 Tax Form: What Corporate Mobility, HR Pros and Senior Executives Need to Know. However, because there have been recent tax updates that could potentially impact relocation programs throughout various sections of the nation, we are posting new information to help all parties stay well-informed.
At the Federal Level – Final Move and Household Goods Expenses Are Taxable (State Taxation May Be Another Story)
From a Federal Tax Code perspective, final moving and household goods expenses can no longer be deducted by employees that are relocated in 2018. Some states, however, will not be following the Fed’s lead.
After further review of federal tax law reform regarding mobility-related expenses, several states have decided to continue to allow individuals that were relocated by their companies to exclude household goods moving and relocation related expenses. States that will allow the moving and relocation deduction for 2018 are listed below.
- VA (Virginia)
- PA (Pennsylvania)
- NY (New York)
- NJ (New Jersey)
- MS (Mississippi)
- MN (Minnesota)
- MA (Massachusetts)
- KY (Kentucky)
- IA (Iowa)
- HI (Hawaii)
- AZ (Arizona)
In addition, several states are in the process of assessing their alignment with the federal tax approach. The states listed below will provide guidance on their stance regarding 2018 tax reform by year end.
- VT (Vermont)
- SC (South Carolina)
- ME (Maine)
- CA (California)
- AR (Arkansas)
Your Finance Department – Are They Ready?
Working carefully with tax providers and other experts, northAmerican Moving Services has reviewed various materials to make sure mobility professionals, like you, have the most up-to-date information on the 2018 US Tax Reform. This includes state-level decisions. We do this to help professionals in Human Resources and Procurement identify the impact of these changes on reporting and processing of household goods and relocation-related expenses.
We have identified some key aspects of which you should be aware:
- Education and Communication Involving New Tax Laws –It will be essential to answer any questions that transferees may have, address potential issues, and keep everyone up-to-date regarding the new tax laws – particularly this year.
- True Up – Considering the changes, the relocation industry recommends that every company (as well as their payroll department) conduct a true-up at year’s end to account for all this year's tax law changes.
- Planning for Year End – Be sure to schedule year end planning calls as early as possible in order to leave enough time to strategize on any state level changes that might affect payroll related costs. At year end, there may also be an additional reconciliation needed to confront any state level changes that may have occurred. And along with this reconciliation, there may be associated fees.
- Payroll Reporting – Companies must keep an open line of communication between the payroll department and their moving services provider. This will assure that spend data is delivered in a manner that coincides with any tax changes the company has incurred.
- Providers of Payroll Services – To ensure that your payroll provider's system can receive (within the same transaction) differences between State and Federal taxable income, you should work closely with your payroll provider.
- Over Gross Up – If an in-process relocating employees’ local state makes the decision to brand expenses as excludable, they will need to be overly grossed up – at least until the system can offer both state and federal taxability methods.
- Updates to the Payroll System – In support of state and federal taxability differences, and to be able to provide two different methodologies of support, your company will need to update any software applying to payroll. Today, state and federal taxability needs to follow, within these platforms, the same logic. Updating and rolling out new customer updates will take considerable time for each supplier. In fact, indications show that some suppliers may not be able to provide updates until October of this year. Communication and coordination are going to be key in ensuring that systems capture the taxability of all relocation-related expenses correctly.
What This Means for Corporate Mobility Pros Like You
- Associated Timelines and Decisions Are Fluid – State-level decisions will take time and will possibly not be available until nearly year’s end. It takes time for providers to roll out payroll system updates. It also takes time, once systems are updated, for RMCs to make updates. (Updates to payroll systems take time as well.) It will be critical to assist internal stakeholders in creating realistic timelines.
- Be Familiar with Your Resources – To be well positioned for year-end planning, connect with your moving service provider early.
- Awareness – Make sure that you are aware of all above changes, the steps being taken by your moving service provider and RMC, and how your year-end planning and program may be impacted.
Action Items – What's Next?
- Create Awareness – Make your internal stakeholders aware that, though your updated RMC systems reflect state decisions regarding gross ups, the system used by your payroll provider will also need to be updated to accept RMC instructions. If the system used by your payroll provider is not prepared to accept instructions regarding correct gross up, W-2cs may be required.
- Communicate – Let your payroll department know that if they want to avoid overpayment of gross-ups (and be assured of doing so), it will require a year-end true up.
- Review – To better understand the overall impact that the above may have on your mobility program, review your population.
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