Some civilian federal employees whose overseas moves were paid by the government in the past year are sighing with relief: The IRS has declared that a portion of that benefit is tax exempt.
The Tax Cuts and Jobs Act of 2017 eliminated the tax deduction for moving expenses for everyone except active-duty servicemembers. Until recently, that meant most everything the federal government paid to move its civilian employees permanently, including shipping and storing their household goods, was considered taxable income.
Many overseas federal employees — new hires and trainees included — and all stateside workers still face a tax on that benefit.
Some overseas federal workers have been granted a reprieve. The IRS in November said federal employees moving overseas from one federal job to another will not be taxed on government allowances for such costs as shipping vehicles and household goods or for temporary housing.
The news came as a great relief to Hans Garcia, a 14-year Army civilian employee who retired last year and moved back to the United States from Stuttgart, Germany.
Garcia estimated the cost to move his household goods and his vehicle at $80,000, he told Stars and Stripes in an email.
“I will be taxed an additional $17,600 — 22 percent tax bracket — over my regular wages,” he said before learning he would be exempt from that tax.
Garcia called the new guidance for overseas employees “great news,” adding that the moving expense taxation “would have been a hard financial burden for many.”
Confusion
Federal employees are exempt, taxwise, because the Armed Forces Tax Counsel issued new guidance last fall, according to a statement by the Army’s 21st Theater Sustainment Command legal office.
“Allowances received for household goods shipments and storage and privately owned vehicle shipments to and from assignments outside the Continental United States are not taxable income, even under the new law,” the Army statement said.
Some moving-expense allowances are still taxable under the 2017 law, however, including airfare, passport and visa fees, en-route lodging and per-diem expenses, according to the Army statement.
However, most federal employees who moved will see their moving allowances listed as income on their W-2 forms.
The Army statement in December omitted an important caveat: New hires (or appointees), trainees and employees leaving government work and moving overseas are not exempt from the tax on moving allowances, according to the IRS.
Those employees — along with those who move within the continental U.S. — are responsible for paying taxes on money they never see that’s paid directly by the government to service providers such as airlines and moving companies.
Taxes on such moves can bump an employee into a higher tax bracket. A 2015 Government Accountability Office report estimated the average cost of an overseas move for active-duty servicemembers came to more than $13,000, and more than $10,000 for a stateside move. The study did not report costs for civilian moves.
Some relief is available for civilian employees moving from one federal job to another and facing steep tax bills as a result.
A May bulletin from the General Services Administration said those workers can be reimbursed for moving-related tax expenses through Withhold Tax Allowance and Relocation Income Tax Allowance payments.
There remains confusion among employees on how to access these benefits. The Federal Education Association said in a Nov. 23 statement that there is a “lack of clear information being presented” to employees about both programs.
Democratic Virginia Sens. Tim Kaine and Mark Warner in November asked the GSA to press federal agencies to “proactively” assist their eligible employees in applying for and obtaining the reimbursements. An update on whether the GSA issued such guidance since was not available Monday.
Those left behind
Still, a fraction of federal workers will face these tax burdens without relief.
Civilian federal employees who are new appointees, regardless of whether their moves were overseas or in-country, are ineligible for tax exemption and WTA and RITA reimbursements.
Also ineligible for WTA and RITA payments are civilian employees who leave federal jobs — including retirees.
Legislation proposed last year would have made incoming and outgoing employees eligible for WTA and RITA payments, but it stalled in Congress after being introduced in the Senate in July.
With April 15 fast approaching, little time remains to work on the bill that could offer relief for federal workers who have no exemptions available before their taxes are due.
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