On March 27th, 2020, President Trump signed a historic $2 trillion stimulus package into law, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), which promises many Americans relief checks and other economic benefits to help the US economy as we fight the spread of Covid-19. As details of this package emerge, many transferees and assignees are asking their employers and Relocation Management Companies (RMCs) about their eligibility for the stimulus checks outlined in the bill.
The numbers and facts: Generally speaking, if a taxpayer has yet to file their 2019 tax returns, their Adjusted Gross Income (AGI) from their 2018 federal tax return will be used to determine if they are entitled to a stimulus payment or a prorated amount. If a taxpayer has already filed their 2019 tax returns, then their AGI from their 2019 federal tax return will be used to determine if they are to receive any stimulus payment.
For taxpayers who file as “Single” and whose AGI is less than $75,000, they should receive either a $1,200 check or direct deposit (depending if the IRS has their banking information). For single taxpayers whose AGI is between $75,000 to $99,000 they should receive a prorated amount of money. For every $1,200 their AGI exceeds the $75,000 threshold, they will lose $60 worth of stimulus.
For taxpayers who file as “Married Filing Jointly” and whose AGI is less than $150,000, they should receive either $2,400 check or direct deposit (depending if the IRS has their banking information). For married filing jointly taxpayers whose AGI is between $150,000 to $198,000 they should receive a prorated amount of money. For every $2,400 their AGI exceeds the $150,000 threshold, they will lose $120 worth of stimulus.
Taxpayers who file Single or Married Filing Jointly who have children under the age of 17 who they claim as dependents will receive a $500 stimulus payment per child. This payment is also prorated based on the AGI thresholds.
Employees who have experienced a corporate move or assignment in 2018 or 2019 may have additional taxable income added to their W-2 to cover the costs of household goods shipments, temporary housing, home finding trips, etc. This additional income may potentially affect their eligibility to receive the stimulus checks from the federal government.
For example, a single employee who earns $72,000 in 2018 or 2019 would be eligible for a $1,200 check. However, since they moved in previous years and the company added $40,000 to their W-2, they would not qualify for the stimulus payment. If the same employee received $20,000 to their W-2, they would get a phased-out payment of about $360 instead of $1,200. Transferees and assignees will start asking companies and RMCs for help in calculating the “true effect” of their reduced benefits, due to their 2018 or 2019 move or assignment.
How are companies handling this? Ineo has spoken to countless corporations and RMCs representing thousands of moves and assignments and they have stated emphatically that they plan to reimburse any potential lost stimulus payments due to added income from relocation benefits.
Now this is where the calculation can get complicated:
The stimulus payments outlined in the CARES Act are considered an advance tax credit based on the taxpayer’s 2020 AGI. To determine this amount, the IRS is looking at taxpayers’ 2019 tax returns. If 2019 has not been filed yet, they will look at 2018. If a taxpayer’s 2020 AGI ends up outside of the qualifying income range, they do not need to return the payment. However, there are numerous situations that would disqualify someone from receiving this payment based on their 2018, 2019, and 2020 income.
1) An employee and her husband earned $140,000 and filed MFJ in tax year 2019. They have 2 children under the age of 17. Based on the stimulus plan, she would have received a $3,400 payment from the government. However, her employer relocated her family from New York to California in 2019. The taxable relocation benefits she received were placed on her 2019 W-2 and pushed her over the limit of $198,000. This means she and her husband do not receive the stimulus payment. In 2020, they might be able to recapture that payment. Let’s say her husband gets a new job in 2020 and with that job comes a sign on bonus. This would also put them over the threshold of $198,000 and they will not qualify for the stimulus payment.
2) In tax year 2019, an employee made $110,000 and filed Single, disqualifying him for the stimulus payment. In 2020, he got married and his employer moved them from Texas to Illinois. The taxable relocation benefits added to his 2020 W-2 also disqualify them from the MFJ threshold of $198,000.
3) In tax year 2018, an employee and his wife earned $180,000 and received a $1,560 reduced benefit, they had not yet filed their 2019 taxes when this was determined. Between 2018 and 2020, the couple had 2 children and his wife was laid off due to the Coronavirus pandemic, bringing their income below the threshold for the full credit. When they file their 2020 taxes, they would be eligible to receive $1,840 in stimulus credit. However, the employee’s company moved him and his family from Washington to Virginia and the taxable benefits brought his income over the qualifying threshold.
The above are just three examples out of countless scenarios that could happen that would put an employee or assignee in a position to miss out on the stimulus payments. The bottom line is that there is a good probability that some employees will miss out in one way or another because taxable moving expenses were added to either their 2018, 2019 or 2020 W-2s. Both RMC’s and corporations need to be prepared to address transferees’ and assignees’ concerns with regards to this new stimulus bill. Keep in mind, using a conservative example of losing a potential $3,400, if a company decides to tax protect their employees, the average gross-up percentage is between 60% to 70%, meaning a $3,400 lost benefit turns into a potential $5,700+ company cost. It is recommended to conduct a gross-up audit or tax reconciliation (with and withouts) to determine not only what the employee is owed but how much the company responsibility should be.
These are very complex calculations to perform and situations to predict. If you need help determining any potential lost stimulus benefits and how to determine what the employee is owed, please do not hesitate to contact David Oltman, Ineo’s Chief Compliance Officer at firstname.lastname@example.org or 203-529-8173 for a gross-up audit, tax consultation, or tax preparation request.