Whether you're moving across the country or simply across state lines, you may be wondering what you can do to reduce the expenses associated with relocating an entire household of belongings, people, and possibly pets. Fortunately, if you're moving to accept a new job or a promotion at your current job, your employer may help cover some of the expenses associated with your move by offering you a relocation package. Read on to learn more about what expenses may be covered by your employer, as well as what you'll need to know about the potential tax implications of accepting a relocation package.
What expenses may be included in your relocation package?
- Moving, shipping, and storage
The cost of packing and shipping your belongings is one of the expenses most commonly covered by even the most basic employee relocation packages. However, because the dollar amount of expenses reimbursed is usually capped by your employer, it's important to have your belongings moved in the most cost-effective ways possible to help you save funds you can put toward other expenses. If you're moving a relatively short distance, your most economical option is usually a U-Haul truck rental or cargo carrier. You can pack and load your belongings and drive yourself to your new home for the biggest cost savings, or hire movers to help you with the heavy lifting.
If you're moving a longer distance, you may want to look into pod shipping. This involves the packing of your furniture and other belongings into a hard-sided cargo container, which can then be loaded onto a truck and shipped by plane, ship, or train to its final destination. At your new home, you can either unpack the cargo container yourself or hire a moving crew. Because movers aren't required to drive these belongings cross-country, this option is substantially cheaper than other long-distance shipping options.
- Real estate assistance
If you owe more on your current home than it is worth, or if your local real estate market is flat, you may want to negotiate a relocation package that includes the sale of your home. Many companies will pay any closing costs or other expenses associated with selling your home, or will even pay you the fair market value of your home and sell it to a third party relocation company.
On the other side of the coin, you may be having trouble finding a new home -- either due to a limited sales market or financial constraints. In this situation, your employer may be able to offer you down payment assistance or provide you with additional advantages during the home-buying process (such as a lower interest rate or no closing costs).
What do you need to know about relocation packages and taxes?
In some cases, your relocation package may be a tax-free employee perk. However, in other cases, this assistance could be charged to you as taxable income. Generally, as long as your employer reimbursed you under a qualified plan, requiring receipts or other documentation for all expenses incurred, these expenses are tax-free if they relate to the moving of your belongings or you and your family. This includes moving crews, a moving truck or pod shipping container, hotel bills (except meals) for you and your family while traveling from one location to another, and rental car fees or mileage on your own vehicle.
If any of those expenses aren't reimbursed by your employer, you should be able to deduct them on your own income taxes as long as you have supporting documentation. This deduction is available whether or not you itemize your taxes, providing you with a boost in your refund even if you're a relatively low income earner.