URGENT Question: Relocation Package Lump Sum (Boston: mortgage, loan, broker)

[Patapsco]

Hi again -

Ok, we FINALLY have our offer for the relocation package.

They are offering a lump sum of $90,000, and it's up to us how we distribute that among househunting trips, moving, etc. etc.

Am I correct in my understanding that we will lose 1/2 of that to taxes?

If yes, is $45K going to do the job, or will we incur all kinds of debt trying to move from Balto. to Boston? I guess paying for temporary housing while we househunt is OUT.

If no, then obviously I think this is great.

Thoughts? Advice?
Talk me off the ledge, please.

[Valerie C]

I would talk to a tax accountant immediately!! I think may depend on how the money is disbursed to you--directly into your account, or reimbursed on an as-used basis, and then if there are any leftovers, that would be taxed as (possibly) unearned income. It was quite awhile back when we dealt with this... I remember 3 or 4 all expenses paid house hunting trips, temporary housing,plus all costs to sell our old home and buy our new home, plus moving expenses... get your calculator warmed up

[MagicTouch]

yes it will depend on how this works, if they set it up as a maximum for reimbursment or lump sum issuance. Lump sum, from what I know, would be taxed but then you would claim the moving expenses on your taxes as well. You will definitely need to talk with someone who is well versed in taxes and how this really works. If it's reimbursement then you would submit the reciepts for costs for reimbursement up to 90K. Sounds really positive, I'm glad to see that things may really work out well for you and your family. Keep us posted on how things are progressing for you and your family.

IMHO I think you could do this on 45k, but that is me and I'm not in your situation. I think you have a great relocation offer on the table.

Best Wishes!!!

[Patapsco]

Thanks, you guys!

If I'm understanding correctly, it's basically a check for $90K. What you don't use, you keep. (yay!) But, I think the IRS views this as income, which would be a huge bummer.

I got all psyched b/c I found something on the internet saying it's NOT considered income by the IRS... but then saw it was from 2005. Trying to find more current.

I agree about finding a tax accountant/attorney, but we're trying to figure out NOW whether to push for more money ,or if this is ok.

Thanks for the well wishes!!!

(Although I'm still on the ledge. LOL)

[Parsec]

Wow, that is a really great deal. My wife's $2000 lump sum check (in addition to the moving expenses the company paid for) was taxed as ordinary income and the taxes were taken out of her first paycheck (so her first paycheck was very very small. I guess they can't do that with you since that will make your first paycheck negative =p Anyway, since it's taxed as ordinary income, the amount you will really get is based on your marginal tax rate, which is probably 28% right? 72% of $90k is still $64,800. Although your company taxes it as ordinary income, you still have the right to make special moving deductions depending on how you use the cash. So in your case, the absolute minimum you are getting out of this (assuming your marginal tax rate is 28%) would be $64,800. If you spend the money wisely, you can end up keeping more than that based on how much you can deduct. Refer to IRS Publication 521 for what moving expenses qualify for a deduction. Qualifying moving expenses are tallied on Form 3903 and deducted as an adjustment to income on your Form 1040. You cannot deduct any moving expenses that were reimbursed by your employer, but since you are getting a lump sum you don't have to worry about this.

*Disclaimer: Although I am an accountant, I do not take responsibility for any information I just gave =p

EDIT: As for the actual amount you are receiving, I think that is a very fair amount. We moved from Atlanta to Boston. In addition to my wife's $2000 lump sum, her company paid (if I remember correctly) about $15,000 to move 1 car and 1300 s.f. of household items. This was the "premium service" which included all the packing (yes, we didn't have to lift a finger). If you are an average family and need to move 2 cars and 2600 s.f. of items, that shouldn't run more than $25k. Add in the extra expenses for a 1-week house hunting trip and it looks like your lump sum should cover everything, even if you had to use it to pay a few months of your mortgage on your current house! Good luck on your move and congrats again on the great offer.

Double EDIT: I'm ashamed to admit I had to look up this year's tax tables, but if you are married filing jointly, the maximum taxable income for the 28% tax bracket is $160,850. The maximum taxable income for the 33% tax bracket is $349,700. Remember this is taxable income, not your gross income. You could probably make around $200k (but this is including the $90k lump sum) and still be in the 28% tax bracket. Either way, even if you were in the 33% tax bracket, the minimum amount you'll be getting out of this would be 67% of $90k which is $60,300.

[Parsec]

I was also just thinking, some companies may kick in a tax reimbursement to offset the amount you'll lose in federal and/or state taxes. This is not common though. Either way, you should try contacting them to ask about the tax implications (i.e. if it's just taxed as ordinary income or if they will be reimbursing you in a way that allows for special tax treatment).

[Patapsco]

Parsec, my friend, I could just kiss you!!!

Thank you Thank you Thank you Thank you for putting me at ease!!!
(disclaimers and all ;-)

We did ask about the tax angle, and if they'd gross it up, and they said they already had.

But it sounds like we're ok!!!

Thanks too for clarifying the taxable vs gross income. That almost gave me a heart attack. Of course, I've been a little delicate these days! ha!

Thank God at least the not knowing stress is almost over!!!!!!

Thanks again, you're the BEST!

[findingmesomeday]

Parsec, except for the taxes, etc., that sounds about right. It cost approx $60K all in for us to move from VA to Boston and that was really ALL IN. Broker commission, temp housing, househunting trips and lodging for the entire family (numerous times), visitation back and forth until move date, paid time off of work for husband to help with move, additional one month salary to cover "incidentals", bridge loan, packing, loading, moving, car transportation, air transportation and I can't remember what else. Pretty much everything was covered. Then again, that was 10 years ago! So the $90K sounds very generous.

We got a 1099 from the company and we had to report the moving expenses as taxable income. But I know for sure it wasn't the entire $60K and that on our own 1040, we took some sort of deduction for moving expenses.

I'm not an accountant but I'll second the disclaimer to consult one immediately!

Congrats!