Payroll Tax Guideline 103: Procedures for the Administration of Transition Relocation Allowance

Revised April 4, 2018

Sections

01: Summary 

02: Scope and Purpose

03: HR - Payroll 

04: Communication

01: Summary

This policy promotes the proper stewardship of University funds by providing general guidelines for the appropriate and legal uses of University funds in support of the University's missions. This policy contemplates also that certain institutional duties and responsibilities have been delegated to the operating units (department/division) of the University involved in the conduct of business and to display sound ethical business practices in carrying out these responsibilities. This policy will adhere to, and be in conformity with, relevant Internal Revenue Service (IRS) rules/regulations at all times and subject to change as IRS rules change.

University of Massachusetts (UMass) departments may pay a new employee a reasonable transition allowance to cover their personal moving, relocation and employment transition costs, if the employing department considers the payment necessary to employ a highly qualified and/or highly recruited individual.  If a transition allowance is paid, the allowance will be taxable to the employee and paid via Payroll. The allowance must be (1) authorized in advance, (2) documented in writing to the employee and for UMass files, and (3) directly related to the commencement of employment at UMass.

02: Scope and Purpose

The Internal Revenue Code that provided an exclusion from employees’ income for qualified moving expense payments and reimbursements made by employers has been suspended, except for military-related moving expenses, for tax years 2018 through 2025.  All such payments made to an employee, or on an employee’s behalf, are now taxable income to the employee and are required to be reported on the employee’s Form W-2. As a result, the University will no longer be reimbursing employees for moving expenses or paying commercial movers, instead any relocation payments provided by the University will be paid as a transition allowance directly to the employee. The transition allowance is the total amount authorized to be paid for the employee's transition costs and is taxable compensation.

The transition allowance does not apply to special situations involving the establishment or relocation of professional labs, libraries, supplies and equipment of faculty and researchers. These latter payments, if any, will be paid directly to vendors through normal purchasing and accounts payable procedures.

03: HR Payroll 

The transition allowance will be paid through the payroll system as taxable compensation, following normal payroll procedures, using payroll earnings code MNQ – Transition Relocate Allowance.  This earnings code “pays” and adds to taxable gross income.

04: Communication

The hiring department is responsible for communicating information regarding payment and taxability of the allowance to the employee. 

Tax treatment of an employee’s moving expenses, which will now be paid as a transition allowance, are governed by the Internal Revenue Service. All such payments made to an employee will be reported on the employee’s Form W-2.  Federal and state income taxes, social security and Medicare taxes must be withheld from the transition allowance. To accomplish this, a statement similar to the below should be included in the employment agreement or offer letter.

Sample Statement:

A comprehensive transition allowance in the amount of $____________ will be paid in lieu of moving, relocation and employment transition cost reimbursements and/or direct payments to commercial moving companies. The amount of the allowance will be paid to you during your first month of employment. The allowance will be processed as taxable compensation through the Payroll system with all applicable income taxes and FICA amounts deducted.  For further guidance, please consult with your tax advisor. 

Note: Calendar Year (CY) 2018 is a Transition Year.  This means expenses incurred in the previous Calendar Year (2017) will be taxed as stated above if payments are made in CY 2018.  

When the University contracts with a moving company to assist an employee with a move, then the payment to the moving company, once invoiced and paid, will be reported to Payroll and included as income on Form W-2 so employees may be taxed appropriately.