Presentation and slides from 2013 Global Relocation Conference by Quentin Hormel.

2. New 2013 Relocation,
Payroll and Tax Issues
Presented by
Quentin Hormel, CRP

3. American Taxpayer Relief Act of 2012
• Permanently extended many Bush-era
tax cuts.
Health Care Reform Bill
• New Medicare tax rate on higher
incomes.
Payback of Homebuyer Tax Credits

4. 2013:
• American Taxpayer Relief Act of 2012 extended the Bush-era tax
cuts permanently, but with the addition of a new top bracket/rate.
• Tax rates remain the same (10% - 35%) except for the return of top
rate of 39.6% (the pre-2001 top rate).
• Brackets have been slightly adjusted for inflation.
• NEW: Legally married same-sex couples generally must file as
married starting in 2013 (Rev. Ruling 2013-17).
2014+:
• Rates expected to remain the same with brackets adjusted for
inflation.
• Talk of revamping the tax code and eliminating certain deductions
and credits.

5. 2013:
• Phaseout of itemized deductions and exemptions have
returned for higher incomes in 2013. They had been
temporarily eliminated for the previous three years.
• Phaseout occur for AGI’s exceeding $250,000 if SNG, $300,000
if MFJ, $275,000 if HH, and $150,000 if MFS.
• Slight increase in the value of standard deductions and
exemptions.
• Threshold has increased for those taking medical deductions
on the Schedule A. Previously, deductions were available on
costs exceeding 7.5% of gross income. Starting in 2013, that
increases to 10%.
2014+:
• Phaseouts will likely remain.
• The value of standard deductions and exemptions while likely
increase based upon the inflation rate.

6. 2013:
• Business rate increased from $0.555/mile in
2012 to $0.565/mile in 2013.
• Final move excludable rate increased from
$0.23/mile in 2012 to $0.24/mile in 2013.
• Charitable rate remains at $0.14/mile for 2013.
2014:
• To be announced later in 2013.

7. 2013:
• Supplemental withholding rate
remains at 25% (39.6% for
supplemental payments exceeding
$1,000,000).
2014:
• Rates unlikely to change.

8. 2013:
• OASDI rate has returned to 6.2%. Had
temporarily been 4.2% the previous two years.
• OASDI cutoff increased from $110,100 in 2012
to $113,700 in 2013.
2014:
• Rate likely to remain the same with increased
OASDI threshold based upon inflation.

9. 2013:
• For many years, the Medicare rate has been 1.45% with no income
threshold.
• Starting in 2013, there is an “Additional Medicare Tax” of 0.9% for
higher incomes.
• For withholding purposes, the additional tax is required for
Medicare wages exceeding $200,000, regardless of marital status.
• When filing the 1040 Federal tax return, Medicare will be
recalculated based upon total Medicare wages. The thresholds are
$200,000 if SNG or HH, $250,000 if MFJ, and $125,000 if MFS.
• Any additional tax due or overpayments made are reconciled on
the tax return.
• Also, a new 3.8% tax levy on unearned income is imposed for
taxpayers with MAGI exceeding these thresholds. The tax is due
on the lesser of unearned income and MAGI over these thresholds.
2014:
• No additional changes expected.

10. Example 1:
- Married Filing Jointly
- $250,000 in Medicare wages, with no spousal or outside income
- Paid $450 in additional Medicare withholding ($50,000 x 0.9%)
- Federal tax return – threshold of $250,000 – will get $450 back
Example 2:
- Single
- $150,000 with company A and $150,000 with company B
- Didn’t pay additional Medicare withholding
- Federal tax return – threshold of $200,000 – will owe an
additional $900 in tax ($100,000 x 0.9%)

12. 2013:
• For many years, the Medicare rate has been 1.45% with no income
threshold.
• Starting in 2013, there is an “Additional Medicare Tax” of 0.9% for
higher incomes.
• For withholding purposes, the additional tax is required for
Medicare wages exceeding $200,000, regardless of marital status.
• When filing the 1040 Federal tax return, Medicare will be
recalculated based upon total Medicare wages. The thresholds are
$200,000 if SNG or HH, $250,000 if MFJ, and $125,000 if MFS.
• Any additional tax due or overpayments made are reconciled on
the tax return.
• Also, a new 3.8% tax levy on unearned income is imposed for
taxpayers with MAGI exceeding these thresholds. The tax is due
on the lesser of unearned income and MAGI over these thresholds.
2014:
• No additional changes expected.

13. • First-time homebuyers (and some repeat
homebuyers) were eligible for a tax credit
of up to $8,000 for homes purchased
between 4/9/08 and 9/30/10.
• New transferees who previously took the
credit on a home purchase might need to
repay the credit (or portion thereof) due
to the relocation.
• If fully tax protecting transferees and
paying for any loss of the credit, some
may require very large gross-ups.

14. If transferee took the 2009 & 2010 credit (as much as $8,000):
• As long as the transferee lives in the home for 3+ years,
the credit never needs to be repaid.
• If the home is sold within three years of the purchase
date, the credit may need to be repaid.
• The repayment amount is the lesser of the gain on the
sale and the amount of the credit taken.
If transferee took the 2008 credit (as much as $7,500):
• This credit is similar to a 15-year interest-free loan. The
credit is normally repaid in fifteen equal installments
over a 15-year period.
• If the home is sold before repaying the full amount, the
balance may need to be repaid in the year it is sold.
• The repayment amount is the lesser of the gain on the
sale and the remaining balance.

15. Example #1:
• Couple bought home on 4/30/10 for $300,000
and received a $8,000 credit.
• Get transferred and sell home on 4/1/13 –
basis of home is $300,000 - $8,000 + any capital
improvements ($5,000) = $297,000.
• If sell home for $305,000+, then must pay back
$8,000 tax credit. If sell for $297,000-, then no
payback is required. If sell home on 4/30/13
or later, then no payback required.
• To compensate, give transferee $8,000 + gross-
up = roughly $13,000.

16. Example #2:
• Couple bought home on 6/1/08 for
$300,000 and received $7,500 credit (paid
back over 15 years).
• Sell home on 10/1/13 – may need to pay
back the balance ($6,000) on the following
year’s tax return if made profit, rather
than over the following 12 years.
• How to handle?

17. • Exclusion on gain of up to $500,000 if
MFJ, $250,000 if SNG.
• Must live in home for at least two of the
last five years.
• If moved prior to two years, can take a
portion of exclusion if moved under
certain scenarios.
• Taxable gains may be subject to the 3.8%
Medicare tax levy as unearned income.
• Loss on sales are not deductible!

18. • Written in 1969 to stop high-income people
from paying little or no tax.
• Never adjusted for inflation until recent
years with one- and two-year patches.
• Finally, the American Taxpayer Relief Act of
2012 permanently added annual inflation
adjustments for the exemption amounts.
• For 2013, the exemptions are $80,800 if MFJ,
$51,900 if SNG or HH, and $40,400 if MFS.
• Very complex calculation.

19. • Transit, Storage and Final Move
Expenses – Most costs are either
deductible (if not reimbursed) or
excludable (if paid by employer).
• Child Tax Credit - $1,000 / dependent
under age of 17. Extended indefinitely.
• Sales Tax Deduction – Available since
2004. Was extended for 2012 and 2013.

20. • PMI – Deduction has been available since
2007. Was extended for 2012 and 2013.
Deductible on the Schedule A.
• Points/Interest & Taxes – Deductible on
the Schedule A.
• Education Deductions and Credits –
American Opportunity Tax Credit,
Lifetime Learning Credit, and tuition and
fee deductions. Credits taken on Form
8863 and deductions on Form 8917.

21. In 2010, IRS announced 6,000+ intense company payroll
audits continuing thru late 2013/early 2014. Major focus
includes:
• Worker misclassification (employee vs. contractor).
• Fringe benefit reporting.
• Executive pay.
Other areas to watch for:
• Not reporting taxable relocation expenses, or waiting
until the end of the year to report them vs. pay period
basis. Penalties can be significant.
• Should be careful about reimbursing expense at year-end
but not reporting to payroll until the following year.
• Temporary assignments.

22. • In most cases, withholding is required in
work state.
• In most cases, income tax is owed in work
state, with non-residents taking a tax
credit on their home state’s income tax
return.
• Nine states have no income tax on earned
income.
• Exceptions are states with reciprocal
agreements.

23. State
Reciprocal
Agreements
D.C.
Illinois
Indiana
Iowa
Kentucky
Maryland
Michigan
Minnesota
Montana
NewJersey
NorthDakota
Ohio
Pennsylvania
Virginia
WestVirginia
Wisconsin
D.C. X X
Illinois X X X X
Indiana X X X X X
Iowa X
Kentucky X X X X X X X
Maryland X X X X
Michigan X X X X X X
Minnesota X X
Montana X
New Jersey X
North Dakota X X
Ohio X X X X X
Pennsylvania X X X X X X
Virginia X X X X X
West Virginia X X X X X
Wisconsin X X X X

24. • No state income tax on earned income: AK,
FL, NV, NH, SD, TN, TX, WA, and WY
• Don’t allow itemized deductions such as
points or interest & taxes: CT, IL, IN, LA*,
MA, MI, NJ, OH, PA, RI, UT*, WV, and WI*
(* - portion deductible/excludable)
• Allow deduction on Federal tax: AL, IA, LA,
MO*, MT*, OR* (* - has limits)
• Allow deduction/exclusion for final move
meals: NJ and PA
• Distance test of 35 miles: PA

25. • Introduced on March 13, 2013 as H.R. 1129.
• Previously bills introduced in House in 2007 (H.R.
3359), 2009 (H.R. 2110) and 2011 (H.R. 1864).
• Would limit state taxation to the residence state and to
the work state if performing duties for more than 30
days during calendar year.
• Each state has its own rules. Some state require
withholding on non-residents starting with day one
while some others require withholding after reaching a
certain threshold.
• Standardizes the threshold for number of days across
all states at 30 days.

26. • Assignment expected to last no more than one year is
treated like a business trip.
• If expected to last longer than a year, then treated as
relocation.
• Many business trip expenses are non-taxable:
- Trip at start and end of assignment
- Transportation, lodging, meals
- Some miscellaneous expenses
- Certain return trips
- Option of per diem allowances in lieu of receipted
expenses (www.gsa.gov for domestic tables and
aoprals.state.gov for int’l locations; starting in 2012, IRS
Pub. 1542 no longer publishes rates)
- Employee’s Visa, passport, language training
- Family expenses are taxable!

28. • Form W-2 – Wage & Tax Statement
• “RTR” – Formerly Form 4782
• Form 3903 – Moving Expenses
• Publication 521 – Moving Expenses
• Form 8959 – Additional Medicare Tax
• Form 5405 – Repayment of First-Time Homebuyer Credit
• Form 6251 – AMT Tax
• Schedule D – Capital Gains & Losses
• Schedule A – Itemized Deductions
• Publication 15 / Circular E – Employer’s Tax Guide to
Fringe Benefits
• IRS Publication 463 – Travel, Entertainment, Gift and Car
Expenses
• IRS Publication 535 – Business Expenses
• IRS’s Taxable Fringe Benefit Guide
• IRS Publication 970 – Tax Benefits for Education

29. Quentin Hormel, CRP
Qhormel@orionmobility.com
203-563-2119
www.orionmobility.com