Presentation on theme: "“ Renters Are People Too! “ Moderator Bob Ludwig, Reads Moving Systems Panelists: Sylvia S. Ehrlich, The Intrepid New Yorker, LLC Robert J. Nish, Esq.,"— Presentation transcript:
“ Renters Are People Too! “ Moderator Bob Ludwig, Reads Moving Systems Panelists: Sylvia S. Ehrlich, The Intrepid New Yorker, LLC Robert J. Nish, Esq., SCRP, ROBERT J. NISH, P.C. David S. Oltman, Relocation Taxes, LLC
Avg. cost to transfer a Renter Current Employee - $20, (7% decrease) New Hire -$17, decrease (3% decrease) Avg. Cost to transfer a Homeowner Current Emp. - $90, (18% increase) New Hire - $66, (8% increase) ERC Survey Results 2009
Home owning Transferees Choosing to Rent 66% of Companies Reported an Increase 33% encourage Homeowner Transferees to Rent 12 Companies offered incentive to Rent 21 policy changes in 2009 Only 1 dealt with Renters
Why increasing number of Renters Joint Center for Housing at Harvard Reports Elevated Vacancy Rates Record foreclosures Expiration of the Tax Credit High unemployment Severe housing cost burdens 18.6 million households are spending half or more of their income on housing
What Are Companies Experiencing? Increase in… Commuter Assignments Temporary Assignments Lump Sum Payments Rental subsidy
Case Studies Presented by: Sylvia S. Ehrlich, SCRP President The Intrepid New Yorker, LLC
International Dilemma Family of five arrived in NYC with no credit history Challenge Identify appropriate rental property (cost, size, and schools) Landlord not willing to accept less than six months security deposit for their “perfect” apartment Solution Got corporate client to agree to act as guarantor Negotiated security deposit Results Secured with two months deposit Other options…
Repatriation Dilemma Executive repatriated back to home in New Jersey (family of seven + pets) Challenge Home still under lease (five months remaining) Children needed to go back to their respective schools Solution Identified empty builder new property Paid over value and gave a high security deposit Rented furniture Results Children attended their right schools Family settled back into their neighborhood without a legal crisis or issues
Domestic Transfer Dilemma Executive’s property remained unsold in the departure location Challenge Mortgage was above the current value of the home No company guarantees against the loss on the mortgage Limited Equity Solution Looked to identify lease to purchase properties Worked with the corporate client to provide delayed relocation benefits beyond the standard one year term Identified a home with affordable rent and delayed purchase option in the destination location Results Family could be together while the departure home continued to be marketed for sale
Legal Implications Presented by: ROBERT J. NISH, P.C. ATTORNEYS AT LAW A PROFESSIONAL CORPORATION 163 WASHINGTON STREET MORRISTOWN, NJ (973) ROBERT J. NISH, SCRP NOËLLE K. NISH, CRP
2010 Tax, Legal & Payroll Issues Presented by: David S. Oltman, CRP President & CEO Relocation Taxes, LLC
New 2010 Corporate Tax, Legal & Payroll Issues The Economic Stimulus Act of 2008/9/10 Renter Issues… Without moving W-2 reportable expenses: MFJ < $150,000 = $1,200 rebate (phase out - $174,000) SNG < $75,000 = $600 rebate (phase out - $87,000) Children = $300 rebate per child What rebate was lost in 2008, will usually be regained in tax year 2009 or A Fairly Complex Calculation. Recommendation: Do nothing until 2010/2011 – and then only after doing a complete gross-up audit in 2011 of the employee’s 2010 tax return. Cost usually between $225 to $325 per audit.* * Business Expense. Not taxable.
New 2010 Corporate Tax and Payroll Issues 1) AMT Tax (Alternative Minimum Tax) effects – could effect 10 times more taxpayers, “Target” result is the corporate transferee. (higher gross-ups). See RTA p.10 & page 40. 2) All Tax Brackets where indexed for inflation (significant lower gross-ups in 2010 could be higher in 2011) See RTA p.11. Brand new – lower phase- outs for 1% itemized deductions (went from 3% to 2% to 1% to 0% in 2010) - and lower phase-out for personal exemption amounts 1/3 reduction and a new minimum of $2,333 ($3,500 x %) per personal exception. 0% in Average savings of $375/move. Potential 2010 or 2011 higher tax rates – gross-up impact. 60% total tax rate = a 150% gross-up. 3) Temporary Assignments. How states are catching employees who do not report their wages. Tax Amnesty. Hotel & credit card gas receipts. IRS Employment Tax Audits Begin in 2010 and will run through ) Reduced Home Sale Exclusion & New Home Buyer Tax Credit ($8,000/$6,500). Very Complex. See RTA – p.40 IRS Form ) New 2010 HUD-1 Form – Special attention should be given to line 801 – See RTA page 32.
2010 Huge Tax Issues Temporary Assignments – 1 year rule – business vs. taxable. See RTA pages 8 & 9 also Revenue Ruling New Trend to “reconcile” state taxes – “Keep Employee Whole For State Income Tax ”. New Proposed Tax Bill – H.R “30 Day Rule” (was H.R day rule). “Mobile Workforce State Income Tax Fairness and Simplification”. The methodology used is to calculate what the employee “would have paid” in Federal and State/Local taxes (in the “live state”) – then compare that amount to what the employee “actually paid” in Federal and State/Local taxes (in the temp. “work state”). The difference between those two amounts is the amount due the employee. Some issues to consider are: a) Any State income tax dollars that were “advanced” or “loaned” b) The taxability of “advances” or “loans” c) Multi-state tax credits taken or not taken on state tax returns d) Non-Resident and Part-Year Resident state tax returns e) Administration of the program – “loans”, “advances” and “repayments” *Proposed Effective Date 1/1/2011 – See RTA p. 13
Capital Losses on home sales are NOT deductible. See RTA page 2 The Mortgage Forgiveness Debt Relief Act. “Short Sales” no longer taxable, Negative Equities and Loss on Sales. First Time Homebuyers Credit: $8,000/$6,500 (MFJ $225,000; SNG $125,00) start of phase out range. Need to be in contract before 5/1 and close before 10/1. Three year pay back period. See IRS Form 5405 Very complex. Three (3) year payback provision. Making Work Pay Credit: – A maximum $400 to $800 credit Phase out range (Single $75,000 - $95,000 and then MFJ $150,000 - $190,000) Average Gross-up Percents – Could go from 60% to over150% based on proposed 2011 tax changes. (H.R. 5297) New law which require individuals who rent out their property who are considered to be engaged in a trade or business for purposes of information reporting to provide a 1099 to persons who provide goods or services to them aggregating over $600 during the year in connection with the rental. This provision is effective for payments made starting in This is a brand new issue, while further guidance is expected, it is not necessarily guaranteed. This is an added burden for the corporate transferee – just another argument for providing tax preparation assistance to domestic transferees. Average Gross-up Percents – Could go from 60% to over150% based on proposed 2011 tax changes.Companies should Focus on “Total Costs” – not just a fee (i.e. $50/move vs. $12,000 Gross-up) 2010 Tax and Payroll Issues
IRS 2010 Tax Forms: RTR - "Relocation Tax Report" - replaces old "IRS Form 4782“. See RTA p. 21 "Moving Expenses" - taxpayer required. See RTA p. 25 Sch. D - "Capital Gains and Losses" - replaces old "IRS Form 2119" New 2011 Federal, State, Local and F.I.C.A. (Social Security – 6.20%) $106,800 & Medicare 1.45% unlimited) tax brackets. The 2010 FICA/Medicare brackets – remain the same as in 2009 as well.
Penalties for Failure to Withhold taxes on a timely basis. Most all relocation expense reimbursements or supplemental wage payments are subject to withholding at the time of payment. Most companies use the Supplemental rate of 25% and apply a gross-up percentage. Accountable Plan rules apply, using the 30/60/120 rule. Taxable moving expenses (lump sums) are treated as if they were paid under a "non-accountable" plan. An average penalty of $8,000 per move could cost a company that relocates 200 employees per year, 1.6 million dollars for each year of non-compliance.
Tax Saving Strategies (Withhold/Gross-up/Lump Sums) 1) When ever possible, always look for a business purpose for an expense. For example, Moves less than 1 year (temporary assignments), a Pre-employment physical, House Hunting Trips as business trips (breakout spouse expenses). Use a TP Home Sale Company or Qualified In-House Program. Tax Gross-up Savings over $9,000 per move 2) Have trained accounting/relocation tax expense professionals tax code and audit all expenses entered from the transferee's expense report. Average cost is $300 to $500 per move 3) Do not include either Van Line or Final Move expenses in a "Lump-Sum" allowance. Why? Because not taxable when receipts are provided. Employees can still deduct their moving expenses even if they receive a lump sum that is taxable and grossed-up. Lumps Sum Software $25 to $75 per move. Rates available for continental U.S., Alaska, Hawaii and Canada 4) Re-capture any FICA overpayments – Year-end “true-up” – only adjust for “negatives” differences. Tax Gross-up Savings over $1,000+ per move. 5) Explain/Educate employees with regard to how their gross-up was calculated. Priceless!!!!!
Year-end “true-up” or “difference” or “delta” calculation. Negatives only “adjustments”. Big savings in gross-ups Average gross-up is over $10,000. (Average savings over $2,000 per move). Only gross-up at supplemental rate [ 25% ], let transferees come back and request more. Gross-up Audit after the fact. (Average savings over $1,000 per move). Companies no longer automatically grossing-up for FICA (6.20% %) $106,800 maximum. Same in 2010 – New 2011 rate remains unchanged. Lump Sums – Becoming very popular, software is available. $25 - $75 Expense Management Audits – Relocation Accounting Audits. (Average costs $325 per audit or several thousand dollars to audit a “batch” of records). Reconcile State Taxes for employees who go on a temporary assignment. Gross-up wages for extra state taxes when needed. Gross-up Audits – for AMT, WPC and Lost Credits. Cost $325 per move Hot 2010 Relocation Trends
1) Income will be inflated due to moving expenses paid by your company. Make sure that your federal and state withholdings are sufficient to cover the increase. Also, the year after the move, most transferees are more likely to be under withheld. If in doubt, contact your tax advisor. See RTA p.7 Also, If your company paid your Van Line bill, you can NOT deduct it on IRS Form ) Make sure that a state W-4 form has been prepared and given to your payroll department so that withholding is being taken out in the proper state. YOU ARE REQUIRED TO HAVE WITHHOLDING TAKEN IN THE STATE THAT YOU WORK IN, EVEN IF YOU ARE A RESIDENT OF ANOTHER STATE! This should become effective the first paycheck received in the new place of employment. See RTA p.7, 12 and 13 3) In addition to the state, your new city may also require tax to be withheld. Review your first pay stub to make sure that this is being done (if applicable). 4) Keep in mind that excess FICA withheld from two or more employers is refundable, Line 65 IRS tax form Affects both working spouses. 5) You have up to two years to satisfy the time test, to establish permanent residency, in order to deduct moving expenses. 10 Things Every Employee Should Know Before Considering a Move
6) Special costs, that are unique to you, are also deductible as moving expenses such as pets, horses, aquariums and tips paid to “movers & packers. No limit on the number of cars that can be moved and deducted. See RTA p.4 7) The cost of moving students, from their college to the new location, is deductible. 8) In the year that you move, remember that any non-amortized points on a refinanced loan can be deducted if you sell your house. See RTA p.8 9) Premature distributions from pension plans are not only taxable as income but incur a 10% penalty unless rolled over within 60 days. There is often a misconception how the rules for first time homebuyers work. Also in the year of a move, income is inflated and this is probably not a good time to take an early distribution. 10) The year after the move, significant potential for under withholding penalties exist. It could be hard to meet any of the safe harbor rules: Owe $150k, then pay 110% of last years liability. See RTA p.7 10 Things Every Employee Should Know Before Considering a Move
2010 GROSS-UP DECISIONS YES/NOAdditional Cost Per Move* Use Tax Tables _____ Several Thousand Dollars State Taxes_____Moved To / From / Both ? $1,000 Include Fed. in State_____$350 Local Taxes_____$150 F.I.C.A. Taxes _____SS / Med / Both SS $1,000 / Med $250 F.I.C.A. Circular Logic_____$400 Money Saving Gross-up Policy Administrative Opportunities
2010 GROSS-UP DECISIONS YES/NOAdditional Cost Per Move* Deduction/Exempt. Phase-out____$275 (No 2010 phase-out) Assume Itemized Deductions ____$600 (New GST) Gross-up "Unqualified" Moves____$5,800 Misc. Expense Allowance____$4,000 COLA / MIDA____$6,000 $0.50/$0.165 cents per mile____$150 Loss on Sale____$10,000 to $50,000+ AMT, WPC, First Time HB Credits____$1,000 - $20,000+ Annualize New Hire Salaries ____Several Thousand Dollars
Money Saving Gross-up Policy Administrative Opportunities 2010 GROSS-UP DECISIONS YES/NOAdditional Cost Per Move* Look at Non-itemizers (Renters)____$500+ Economic Stimulus Package____$0 to $2,000+ Third Party Home Sale Company____$9,000 Other____58% to 60% of Benefit Paid The dollar amounts presented are estimates only. The actual dollar amount will vary based on the total cost of the move, what state is used for tax purposes, and of course the company's relocation tax gross-up policy. * Savings documented well over $1,000 per move. Copyright Relocation Taxes, LLC 2010