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RECRUITING & RELOCATION
TAX DEPARTMENT DISCUSSION
“The hardest thing in the world to understand is income taxes.” Albert Einstein
• Provide guidance on taxability• Not yes or no – just taxable or nontaxable• Human Resources governs compensation
practices/policy• Additional Human Resources review threshold
• $250,000 and above (HR)• $500,000 and above (president only)
Tax Department’s Role
• Cornell may generally pay for the reasonable and necessary travel, lodging and meals expenses for a recruit on a tax-free basis.
• Issues:– House hunting, area exploration, learning about schools if no other
Cornell activities on that day.– “Sandwich rule” and the weekends.– Pre/post recruiting travel extensions.– Expenses, including additional expenses, for those other than the
recruit (see questions for exception).
Taxation of Recruiting Expenses
• 4 requirements for tax-free treatment1) Closely related to the start of work
2) Distance test
3) Time test
4) Paying for a nontaxable expense
Taxation of Moving Expenses
• Closely related to start of work– Closely related in time
• Presumption - expenses incurred within 1 year form the date first reported to work at the new location
• Not absolute – must be able to show that “circumstances existed that prevented the move in that time”.
– Acceptable example – allow child to complete high school.– Note, can’t pay for commuting costs.
– Closely related in place• Distance from new home to the new location is not more than the distance from your
former home to the new job location (i.e., you can’t move further away).• Vacation/seasonal/beach homes don’t count – only the main home of the employee.
Taxation of Moving Expenses
• Distance test– New main job location is 50 miles farther from your former home
than your old main job location was from your former home.1) Enter # of miles from your old home to your new workplace.
2) Enter # of miles from your old home to your old workplace.
3) Subtract Line 2 from Line 1
**If line 3 is 50 miles or more, this test is satisfied.
• “Main job location” – where spend most of working time (look at offer letter if split appointment).
• Example – old home to new home is 60 miles away; old home to old workplace is 20 miles away; Line 3 is 40 miles, test is NOT met.
Taxation of Moving Expenses
• Time test (a.k.a., the 39-week test)– Employee must work full-time for at least 39 weeks during the first
12 months after arriving in the general area of the new work location.– 39 weeks doesn’t have to be consecutive.– Must work in the same location for all 39 weeks.– Part-time employment can’t ever meet this test or be counted towards
test.– Absence from work due to illness, strike, lockout, layoff, natural
disaster, or vacation/leave approved in contract/offer letter/agreement is counted towards the 39 weeks.
Taxation of Moving Expenses
• Reasonable & Necessary• One-way move (not round trip)• Moving household goods and personal effects from old home to new home
– Includes costs of packing, crating, and moving the household goods.– Includes household pets (not farm animals)
• Lodging en route (not once they arrive)– EXCLUDES meals!
• Transportation for household members– 23.5 cents per mile for driving owned car (can drive more than one car)
• Can ship a car
– Must be by most direct route– Layovers/diversions are taxable (if expense increases as a result)
• Costs of deducting or disconnecting utilities required because of moving.• Storage for up to 30 consecutive days after the day the things are moved.• One day of lodging at the old home if could no longer live in former home due to furniture being
moved.• Household members do not have to travel together; each person can incur a single one-way trip.
Nontaxable Moving Expenses
• Taxable:– HOUSEHUNTING– Meals while moving– Lodging after arriving or before moving (note exception for one day in area of old home)– Additional costs due to diversions/unnecessary layovers– Return trips or trips to another location– Costs of moving or shipping items from a location other than the old home (e.g., vacation home) if causes additional
costs– Storage beyond 30 days– Expenses of buying/selling a home– Expenses of breaking a lease early– Child care expenses– Car tags/drivers licnese– Home improvements to help sell a home or for a new home– Loss on sale of a home– Losses or expenses of terminating memberships– Mortgage penalties– Real estate taxes– Purchase of items for new home (e.g., carpet/draperies)– Security deposits– Green card/permanent residency expenses (distinguish from a visa which is reimbursable tax-free)– Etc.
Taxable Moving Expenses
• If Cornell fails to report taxable benefits, Cornell is jointly and severally liable for the tax (plus interest and penalties).– Tax will be charged back to the unit giving rise to the issue.
• As a nonprofit, Cornell faces additional requirements:– Excess Benefit Transaction
• Requirement to pay “reasonable compensation”.• Presumption that compensation that is reasonable if reported on a W-2.• If taxable benefit is not taxed (and, thus, not on the individual’s W-2), excess
benefit transaction may occur.• Disclosure requirements on 990.• Additional 25% tax on recipient if “cured”.• Additional 200% tax on recipient if not “cured”.
Why does this matter?
• DFA Web Page - http://www.dfa.cornell.edu/tax/universitymatters/other/moving.cfm
• www.irs.gov– Publication 521– Topic 455
Resources
• Spouse/family member travel – taxable unless interviewing for a separate Cornell position. – Must be an interview for an identified position; exploratory meetings/interview would not
qualify.
• Is Cornell alone in enforcing these rules?– No – we polled our peers - nearly all comply; we modelled our original taxability matrix off
of Yale’s.
• Recruit requested higher insurance coverage – is it taxable?– Discuss as group.
• Sabbatical relocation costs – are they taxable?– **Committee just formed and is reviewing**.
• Review procedure of reimbursing taxable payments.– Can always be paid through Payroll as a taxable JRA in lieu of “reimbursing”/paying
through eDoc.– See matrix
Your questions
