Senators Mark Warner and Tim Kaine (both D-VA) Thursday called on the General Service Administration (GSA) to do more to help federal workers manage the burden of new taxes on relocation expenses.
The tax bill passed last year eliminated the deduction for job-related moving costs, as well as the exclusion for reimbursements or in-kind contributions made by employers to defray the cost of moving. As a result, employer reimbursements for moving costs – which were previously excluded – are now generally taxed at the same rate as ordinary income.
According to the senators, this situation is causing a particular burden for civilian federal employees who, after being assigned to a new duty station, have discovered that hundreds or even thousands of dollars have been withheld from their paychecks, often with little advance notice, in order to cover the cost of taxes associated with moving reimbursements from the federal government. While the law excluded active-duty service members, the approximately 25,000 civilian federal workers — from military civilian employees to law enforcement and military teachers — who move each year would have extra money withheld to cover the taxes on this “income” following the changes in the law.
As federal agencies begin informing federal workers about these new tax costs, the Senators believe there is more that should be done to help federal employees understand this change and manage their tax liability.
“It has come to our attention that federal agencies are not proactively helping federal workers to minimize the difficulty of paying taxes on reimbursed or paid for moving costs, and many federal workers are confused about how this new provision is being implemented,” wrote the Senators. “This is especially troubling for federal workers that are likely to have significant moving costs but modest pay, such as our military teachers being sent overseas as part of the Department of Defense Education Activity (DoDEA). These public servants – voluntarily moving long distances to help educate the children of our military — cannot afford paying thousands of dollars of taxes up front, only to wait over a year for reimbursement.”
Warner and Kaine previously called on the GSA to clarify their rules regarding reimbursements for federal worker moving costs as these tax difficulties came to light earlier this year, prompting the agency to issue new guidance. The Senators have also introduced bipartisan legislation to close a loophole in the updated rules that prevented new and retiring federal employees from being eligible for reimbursement for the additional taxes.
The full text of the letter can be found here and below.
Honorable Emily W. Murphy
Administrator, U.S. General Services Administration
1800 F Street NW
Washington, D.C. 20006
Dear Administrator Murphy:
It has come to our attention that federal agencies are not proactively helping federal workers to minimize the difficulty of paying taxes on reimbursed or paid for moving costs, and many federal workers are confused about how this new provision is being implemented. This is especially troubling for federal workers that are likely to have significant moving costs but modest pay, such as our military teachers being sent overseas as part of the Department of Defense Education Activity (DoDEA). These public servants – voluntarily moving long distances to help educate the children of our military — cannot afford paying thousands of dollars of taxes up front, only to wait over a year for reimbursement.
In April, we sought quick action to ensure federal workers could utilize the relocation income tax allowance (RITA) and the withholding tax allowance (WTA) for federal taxes on moving cost expenses, which became taxable following the 2017 tax bill. We were pleased when GSA released guidance in May that authorized agencies to use RITA and WTA to cover substantially all of the increased tax liability.
It now appears that some federal workers are only getting partial guidance on managing this process, being informed about the new tax costs and RITA, but not fully informed about WTA. RITA reimbursements can only be issued in the year following the additional taxes, meaning workers could be waiting months, or over a year, to get reimbursed. Federal workers may have to take on debt or borrow from their retirement accounts to carry these costs as they await reimbursement.
In fact, there is a program designed to address just this issue: the WTA. The WTA provides funds much earlier than RITA, and can assist those federal workers who are unable to bear the delay of RITA reimbursements. Unfortunately, it appears that at least some federal agencies are not proactively informing their workers about the option to use the WTA.
For most affected federal workers, this is the first time relocation expenses have such serious tax implications, and many remain confused about how it impacts them. It is important for federal agencies to present workers with all the tools available to manage these new costs. Beyond just informing federal workers about both RITA and WTA, agencies or departments in which relocations are common or which are likely to have higher moving costs, like DoDEA, should take additional steps to assist workers in understanding the new provisions and utilizing these options.
Thank you for your attention to this matter.