Relocation Allowances - Taxable?
February 5, 2005 5:57 PM   Subscribe

TaxFilter: A co-worker and I both recently relocated and received a relocation allowance. Anything above the cost of the move (excess reimbursement) we were allowed to keep. I know that the excess is taxable income. My co-worker feels that the relocation allowance is like our Meals and Incidental Expenses per diem, we didn't spend all of the allowance, so we get to keep the balance treating it as non-taxable income.

How can I simply explain the difference between a per diem and an excess reimbusrment to him? I've showed him relevant IRS documentation such as Publications 17 and 521 to no avail.
posted by Fat Guy to Work & Money (5 answers total)
Don't worry about it. The IRS will straighten him out soon enough. And then you can laugh and say "told you!"
posted by kindall at 10:25 PM on February 5, 2005

You can simply explain it this way: A per diem is paid per diem. Excess allowance for relocation is not. Therefore, relocation expense overages are not per diem income. Apples are not oranges.
posted by majick at 11:46 PM on February 5, 2005

The IRS will straighten him out soon enough. And then you can laugh and say "told you!"

Riiiiight. Have you ever seen the odds of getting audited? From what I understand, it's one of the dirty little secrets of our tax system that it often makes financial sense (in an expected value sense) to play the odds and hope you don't get caught. Sadly, if he does this, h'ell probably get away with it.
posted by gd779 at 8:46 AM on February 6, 2005

"I know it doesn't make sense to you and me, but it's the IRS. That's the utterly arbitrary distinction they've made, and these two kinds of reimbursement aren't the same. This one you gotta pay tax on."

More rationally, the per diem thing is a response to the difficulty of keeping receipts for every meal, etc. They'll let you claim a certain amount, and basically don't require any proof that there actually was a business-related expense. But relocation allowances are bigger, rarer, and easier to document--and thus easier to police. The per diem thing is a matter of grace, because the game of policing it wouldn't be worth the candle from the government's point of view.
posted by grimmelm at 9:37 AM on February 6, 2005

On the other hand, is this a great big pile of money, or a few hundred bucks? Is the company reporting your relocation allowance to the IRS?

If it's less than a few thousand and the company isn't reporting it, then the worst that's at all likely to happen is that the IRS sends him a letter saying "You goofed and owe us another $237 + $smallnum in interest/penalties." Assuming it goes that far; ya gotta ask whether it's even worth the time on the IRS computers to bother going after something that small except in a probabalistic way.

I'd second kindall: unless him being "caught" would somehow pick your pocket or break you leg, let it go; you've done due diligence by explaining it to him. If you want to make sure that he's paying his fair share of taxes, you can always rat him out to the IRS.
posted by ROU_Xenophobe at 9:38 AM on February 6, 2005

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