Gross up Moving Expenses Tax Assistance

[jgoveas]

Hi Guys,

If anyone can help explain how gross up tax assistance is supposed to help an employee receiving it I will take my hat off to you.

I thought I finished up taxes (all filled out by hand thank you very much) until my husband questioned the idea of 'gross up' tax assistance. I read a few articles on the internet but still can't wrap my head around it.

This is what the employer did:

They paid deductible moving expenses directly to the vendors and did not report it in box 1 of our wages. This was $6958.15 for airfare and transportation and delivery of household goods.

They did include in wages the following:

1. expenses of 5860 paid directly to the vendor for house hunting and temporary lodging expenses.
2. 3638 in miscellaneous expenses they reimbursed us for non-deductible items such as meals during the trip, loss on rent etc etc
and 3. the kicker: 6189 in Tax Gross Up:

Federal Tax 3922.14
State Tax: 942
Local/Special Tax 125.52
Fica(OASDI) Tax 972
Medicare Tax 227.47

This gross up tax from my understanding was paid directly to the IRS then reported as income. They say that it was 'grossed up' to help offset the 'tax on tax' burden. And this is the part I don't understand. Why are we reporting this 6189.82 as income and how does it benefit us when it increases our tax bracket. We did not receive any tax amounts directly.

Thank you so much if anyone can figure this out. Tomorrow I will try to contact someone sensible at the company but I'm not holding my breath. Thanks!

[irakon]

We got the same statement from the company where my husband works. The way I understand it, is that this Gross up tax on reimbursable moving expenses the company paid on our behalf to IRS, so it is a benefit to us and treated as taxable income. Even if you did not get reimbursed directly but the amount was paid to 3rd party like moving companies or hotels, it was still a benefit to you. And yes, it does increase total income, but taxes already paid for it by the company. And you get to deduct only moving expenses allowed on form 3903.

by the way, not only the reimbursable expenses associated with your move were added to your income, but these taxes that the company paid on your behalf to IRS were also included in corresponding boxes on W-2 form.

[Steven]

Well it's a benefit-in-kind, so you owe taxes on it, not sure why they're making it sound so complex.

[jgoveas]

I guess it was confusing because as irakon says, the taxes they paid on our behalf are also taxed and when we moved here, they were explicit in saying we wouldn't be paying a cent. So it's a weird cycle. But if these taxes were also shown in the boxes 'federal taxes withheld' then that would make sense but can't seem to get a clear answer from the company if that was the case yet. So Irakon, you simply inputted the amounts on your W2 but didn't deduct anything right? Apparently though, if you use schedule A, the state and local gross up tax is deductible. This was from a booklet they gave us...been on hold with the IRS for ages to double check...still listening to classical music.

[Steven]

"Hello I am IRS agent 123456 what is your question?"

"I want to ask a question about gross up moving expenses tax assistance."

"Please hold."

(wait ten minutes)

Repeat from beginning ad nauseum.

[irakon]

I did deduct moving expenses, but only the ones that are allowed on form 3903, it is only the part of reimbursable expenses from the company. I didn't use schedule A, in our case we didn't need it, standard deduction worked better for us instead of itemized. If you look at how much taxes were deducted from your paycheck during the year and the total amount shown on W-2, it is a benefit that the company paid some taxes on your behalf and included it in W-2 as if you paid those taxes. In our case, the company paid on our behalf $7000 in taxes to IRS, and we got full reimbursement for all the moving expenses, the company did not deduct taxes from us - it is a benefit.