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(1) For employees transferred on or after November 14, 1983, through October 11, 1984. The amount of a broker's fee or real estate commission, or other real estate sales transaction expenses which normally are reimbursable to the employee under $ 302–6.2 but have been paid by a relocation service company incident to an assigned sale from the employee, provided that such payments constitute income to the employee. For the purposes of this regulation, an assigned sale occurs when an employee obtains a binding agreement for the sale of his/her residence and assigns the inherent rights and obligations of that agreement to a relocation company that is providing services under contract with the employing agency. For example, if the employee incurs an obligation to pay a specified broker's fee or real estate commission under the terms of the sales agreement, this obligation along with the sales agreement is assigned to the relocation company and may, upon payment of the obligation by the relocation company, constitute income to the employee. (See 8 302–12.7 entitled “Income tax consequences of using relocation companies.")

(2) For employees transferred on or after October 12, 1984. Expenses paid by a relocation company providing relocation services to the transferred employee pursuant to a contract with the employing agency to the extent such payments constitute income to the employee. (See 8 302–12.7.)

NOTE: See reference shown in parentheses for reimbursement provisions for each allowance listed in paragraphs (a) through (i) of this section. See section 217 of the Internal Revenue Code (IRC) and Internal Revenue Service (IRS) Publication 521 entitled “Moving Expenses" and appropriate State and local tax authority publications for additional information on the taxability of moving expense reimbursements and the allowable tax deductions for moving expenses. [54 FR 20332, May 10, 1989, as amended by FTR Amdt. 26, 57 FR 28636, June 26, 1992]

ber 14, 1983, through October 11, 1984, other than the payments for those expenses specified in 8 302–11.3(i)(1).

(b) Any tax liability incurred for local income taxes other than city income tax as a result of moving expense reimbursements for employees transferred on or after November 14, 1983, through October 11, 1984. (See definition in 8 302–11.5(b).)

(c) Any tax liability resulting from reimbursed expenses for any nontemporary storage of household goods except as specifically provided for in $ 302–11.3(c).

(d) Any tax liability resulting from paid or reimbursed expenses for shipment of a privately owned automobile.

(e) Any tax liability resulting from an excess of reimbursed amounts over the actual expense paid or incurred. For instance, if an employee's reimbursement for the movement of household goods is based on the commuted rate schedule and his/her actual moving expenses are less than the reimbursement, the tax liability resulting from the difference is not covered by the RIT allowance. (See 8 302 11.8(c)(2)(i).)

(f) Any tax liability resulting from an employee's decision not to deduct moving expenses for which a tax deduction is allowable under the Internal Revenue Code or appropriate State and local tax codes. (See $8 302–11.8(b)(1) and 302–11.8(c)(2).)

(8) Any tax liability resulting from the payment of recruitment, retention, or relocation bonuses authorized by the Office of Personnel Management pursuant to 5 U.S.C. 5753 and 5754, or any other provisions which allow relocation payments that are not reimbursements for travel, transportation, and other expenses incurred in relocation. (54 FR 20332, May 10, 1989, as amended by FTR Amdt. 17, 56 FR 23658, May 23, 1991; FTR Amdt. 26, 57 FR 28636, June 26, 1992]

8302–11.4 Exclusions from coverage.

The provisions of this part are not applicable to the following:

(a) Any tax liability that may result from payments by the Government to relocation companies on behalf of employees transferred on or after Novem

8302–11.5 Definitions and discussion

of terms. For purposes of this part, the following definitions will apply:

(a) State income tax. A tax, imposed by a State tax authority, that is deductible for Federal income tax purposes as a State income tax under section 164(a)(3) of the IRC. “State" means any one of the several States of the United States and the District of Columbia.

(b) Local income tax. A tax, imposed by a recognized city or county tax authority, that is deductible for Federal income tax purposes as a local (city or county) income tax under section 164(a)(3) of the IRC; except that for employees transferred on or after November 14, 1983, through October 11, 1984, local income tax shall be construed to mean only city income tax. For purposes of this regulation:

(1) City means any unit of general local government which is classified as a municipality by the Bureau of the Census, or which is a town or township that in the determination of the Secretary of the Treasury possesses powers and performs functions comparable to those associated with municipalities, is closely settled, and contains within its boundaries no incorporated places as defined by the Bureau of the Census (31 CFR 215.2(b)(1)).

(2) County means any unit of local general government which is classified as a county by the Bureau of the Census (31 CFR 215.2(e)).

(c) Covered moving expense reimbursements or covered reimbursements. As used herein, these terms include those moving expenses listed in § 302–11.3 as being covered by the RIT allowance and which may be furnished in kind, or for which reimbursement or an allowance is provided by the Government.

(d) Covered taxable reimbursements. Covered moving expense reimbursements minus the tax deductions allowable under the IRC and IRS regulations for moving expenses. (See determination in 8 302–11.8(c).)

(e) Year 1 or reimbursement year. The calendar year in which reimbursement or payment for moving expenses is made to, or for, the employee under the provisions of this part. All or part of these reimbursements (see 8302–11.6) are reported to the IRS as income (wages, salary, or other compensation) to the employee for that tax year under the provisions of the IRC and IRS regulations, and are subject to Federal tax withholding. The withholding tax allowance (WTA) (see paragraph (f)(1) of this section) is calculated in Year 1, to cover the employ

ee's Federal tax withholding obligations each time covered moving expense reimbursements are made that result in a Federal tax withholding obligation. For purposes of this part, an advance of funds for any of the covered moving expenses is not considered to be a reimbursement or a payment until the travel voucher settlement for such expenses takes place. If an employee's reimbursement for moving expenses is spread over more than one year, he/she will have more than one Year 1.

(f) Year 2. The calendar year in which a claim for the RIT allowance is paid.

(1) Generally, Year 2 will be the calendar year immediately following Year 1 and in which the employee files a tax return reflecting his/her tax liability for income received in Year 1. However, there may be instances where the employee's claims submission and/or payment of the RIT allowance is delayed beyond the calendar year immediately following Year 1. (Year 1 will always be the calendar year that reimbursements are received; see paragraph (e) of this section.) Year 2 will be the calendar year in which the RIT allowance is actually paid.

(2) The RIT allowance is calculated in Year 2 and paid to cover the additional tax liability (resulting from moving expense reimbursements received in Year 1) not covered by the WTA paid in Year 1. If an employee's covered taxable reimbursements are spread over more than one year, he/she will have more than one Year 2.

(g) Federal withholding tax rate (FWTR). The tax rate applied to incremental income determine the amount to be withheld for Federal income tax from salary or other compensation such as moving expense reimbursements. Because moving expense reimbursements constitute supplemental wages for Federal income tax purposes, the 20 percent flat rate of withholding is generally applicable to such reimbursements. (See 30211.7(c).) Agencies should refer to the Treasury Financial Manual, TFM 3– 5000, and applicable IRS regulations for complete and up-to-date information on this subject.

(h) Earned income. For purposes of the RIT allowance, “earned income” shall include only the gross compensation

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(salary, wages, or other compensation ity on covered taxable reimbursements such as reimbursement for moving ex- received in Year 1. The amount is compenses and the related WTA (see para- puted by applying the withholding graph (n) of this section) and any RIT gross-up formula prescribed in 8302 allowance (see paragraph (m) of this 11.7(d) (using the Federal withholding section) paid for moving expense reim- tax rate) each time that a Federal bursement in a prior year) that is re- withholding obligation is incurred on ported as income on IRS Form W-2 for covered moving expense reimbursethe employee (employee and spouse, if ments received in Year 1. Grossing-up filing jointly), and if applicable, the the Federal withholding amount pronet earnings (or loss) for self-employ- tects the employee from using part of ment income shown on Schedule SE of his/her moving expense reimbursement the IRS Form 1040. Earned income may to pay Federal withholding taxes. (See be from more than one source. (See $ 302–11.7.) 8302–11.8(d).)

(0) State gross-up. Payment for the es(i) Marginal tax rate (MTR). The tax timated additional State income tax lirate (for example, 33 percent) applica- ability incurred by an employee as a ble to a specific increment of income. result of reimbursements or payments The Federal, Puerto Rico, and State by the Government for the covered marginal tax rates to be used in calcu- moving expenses listed in 8 302–11.3 that lating the RIT allowance are provided are deductible for Federal income tax in appendices A through D of this part. but not for State income tax purposes. (See 8302–11.8(e)(3) of this part for in- (p) State gross-up formula. The forstructions on local marginal tax rate mula prescribed in 8 302–11.8(f)(3) to be determinations.)

used in determining the amount to be (j) Combined marginal tax rate (CMTR). included in the RIT allowance to comA single rate determined by combining pensate an employee for the additional the applicable marginal tax rates for State income tax incurred in States Federal (or Puerto Rico, when applica- that do not allow the deduction of ble), State, and local income taxes, moving expenses. using formulas provided in

8302

(54 FR 20332, May 10, 1989, as amended by 11.8(e)(5).

FTR Amdt. 14, 56 FR 9290, Mar. 6, 1991; FTR (k) Gross-up. Payment for the esti

Amdt. 26, 57 FR 28636, June 26, 1992; FTR mated additional income tax liability Amdt. 30, 58 FR 15437, Mar. 23, 1993; FTR incurred by an employee as a result of Amdt. 32, 58 FR 58244, Oct. 29, 1993] reimbursements or payments by the Government for the covered moving ex

8302–11.6 Procedures in general. penses listed in 8 302–11.3.

(a) This regulation sets forth proce(1) Gross-up formulas. The formulas dures for the computation and payused to determine the amount of the ment of the RIT allowance and defines gross-up for the WTA and the RIT al- agency and employee responsibilities. lowance. The gross-up formulas used This part does not require changes to herein compensate the employee for those internal fiscal procedures estabthe initial tax, the tax on tax, etc. lished by the individual agencies pursuNote that the WTA gross-up formula in ant to IRS regulations, or the Treasury 8302–11.7(d) is different than the RIT Financial Manual, provided that the gross-up formula prescribed in 8302- intent of the statute authorizing the 11.8(f).

RIT allowance and this part are not (m) RIT allowance. The amount of disturbed. payment computed and paid in Year 2 (b) The total amount reimbursed or to cover substantially all of the esti- paid to the employee, or on his/her bemated additional tax liability incurred half, for travel, transportation, and as a result of the covered moving ex- other relocation expenses and allowpense reimbursements received in Year ances is includable in the employee's 1.

gross income pursuant to the IRC and (n) Withholding tax allowance (WTA). certain State or local government tax The withholding tax allowance (WTA), codes. Some moving expenses for which paid in Year 1, covers the employee's reimbursements are received may be Federal income tax withholding liabil- deducted from income by the employee

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as moving expense deductions, subject to certain limitations prescribed by the IRS or pertinent State or local tax authorities. Reimbursements for nondeductible moving expenses are subject to income tax. (See IRS Publication 521 entitled “Moving Expenses" and the appropriate State and local tax codes for detailed information.)

(c) Usually, if the employee is reimbursed for nondeductible moving expenses, the amount of these reimbursements is subject to withholding of Federal income tax in accordance with IRS regulations at the time of reimbursement. Under existing fiscal procedures, the amount of the employee's withholding obligation is usually deducted either from reimbursements for the moving expenses at the time of reimbursement or from the employee's salary. (See Treasury Financial Manual.)

(d) Payment of a WTA established herein will offset deductions for the Federal income tax withholding on moving expense reimbursements, and on the WTA itself, from the employee's moving expense reimbursements or from salary.

(e) The total amount of the RIT allowance can be computed after the end of Year 1 as soon as the earned income level, income tax filing status, total covered taxable reimbursements, and the applicable marginal tax rates can be determined. Employee claims for the RIT allowance should be submitted in accordance with this part and the employing agency's procedures.

(f) Procedures are prescribed in 88 30211.7 and 302–11.8 for computation and payment of the WTA and the RIT allowance. These procedures are built on existing fiscal procedures and IRS regulations regarding reporting of employee income from reimbursements and withholding of taxes on supplemental wages. [54 FR 20332, May 10, 1989, as amended by FTR Amdt. 26, 57 FR 28636, June 26, 1992]

Other withholding tax obligations, if any, such as for social security taxes or for State and/or local income taxes on income resulting from moving expense reimbursements shall not be included in the calculation of the WTA payment. The amount of the WTA is equal to the Federal income tax withholding obligation incurred by the employee on covered moving expense reimbursements (which are not offset by deductible moving expenses) and on the WTA itself. Each time covered moving expense reimbursements are paid to or on behalf of the employee, the WTA shall be calculated, accounted for, and reported as provided in paragraphs (b) through (g) of this section.

(b) Determination of amount of reimbursement subject to withholding. Under IRS regulations, income resulting from reimbursements for nondeductible moving expenses is subject to withholding of Federal income taxes. (See IRS Publication 521, “Moving Expenses.”) There are some moving expenses which may be reimbursed but are not covered taxable reimbursements (see definition in 8 302–11.5(d)) for purposes of the WTA and RIT allowcalculations, such

nontemporary storage of household goods. (See exclusions in $ 302–11.4.) Therefore, the actual amount of the covered taxable reimbursements may be different than the amount of nondeductible moving expenses subject to Federal income tax withholding. The difference in these amounts should not be substantial; therefore, the amount of nondeductible moving expenses subject to Federal income tax withholding, as determined by the agency pursuant to IRS regulations, may be used in calculating the WTA. (Note that the RIT calculation procedure in $ 302–11.8 requires determination of covered taxable reimbursements.)

(c) Determination of Federal withholding tax rate (FWTR). Moving expense reimbursements constitute supplemental wages for Federal income tax purposes. Therefore, an agency must withhold at the withholding rate applicable to supplemental wages. Currently, the supplemental wages withholding rate is 28 percent. The supplemental wages withholding rate should be used in calculating the WTA unless

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8302–11.7 Procedures for determining

the WTA in Year 1. (a) General rules. The WTA is designed to cover only the employee's withholding tax obligation for Federal income taxes on income resulting from covered moving expense reimbursements. (See definition in 8 302–11.5(c).)

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RIT allowance claim is not submitted in a timely manner to settle the RIT allowance account.

(f) Determination of employee's withholding tax on WTA. Since the amount of the WTA is considered income to the employee, it is subject to the same tax withholding requirements as all other moving expense reimbursements. (See Treasury Financial Manual, Section 4080, Moving Expense Reimbursements, for withholding requirements.)

(8) End of year reporting. At the end of the year, agencies generally are required to issue IRS Form(s) W-2 for each employee showing total gross compensation (including moving expense reimbursements) and the applicable amount of Federal taxes withheld. For tax reporting purposes, the WTA is to be treated as a moving expense reimbursement. The

total amount of the employee's WTA's paid during the year as well as the amount of moving expense reimbursements should be included as income on the employee's Form W-2. The Federal tax withholding amount applicable to the moving expense reimbursements and the WTA should also be included on the employee's Form W-2. The amount of the WTA's also will be furnished to the employee along with the amount of moving expense reimbursements on IRS Form 4782 or another itemized listing provided for the employee's use in preparing his/her tax return (see IRS regulations for further guidance) and in claiming the RIT allowance as provided in 8 302–11.8. (54 FR 20332, May 10, 1989, as amended by FTR Amdt. 14, 56 FR 9290, Mar. 6, 1991; FTR Amdt. 58, 62 FR 10709, Mar. 10, 1997]

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(e) WTA payment and employee agreement for repayment. (1) The WTA may be calculated several times within Year 1 if reimbursements for moving expenses are made on more than one travel voucher. Each time an employee is reimbursed for moving expenses which are subject to Federal tax withholding in accordance with the IRS regulations, the WTA will be calculated and paid unless the employee fails to comply with the requirements in paragraph (e)(2) of this section.

(2) The employee shall be required to agree in writing to repay any excess amount paid to him/her in Year 1 (see 88 302–11.8(f)(5) and 302–11.9(b)(3)), and submit the required certified tax information and claim for his/her RIT allowance within a reasonable length of time (as determined by the agency) after the close of Year 1. Failure of the employee to comply with this requirement will preclude the agency's payment of the WTA. The entire WTA will be considered an excess payment if the

g 302–11.8 Rules and procedures for

determining the RIT allowance in

Year 2. (a) Summary/overview of procedures. The RIT allowance will be calculated and claimed in Year 2. This can be accomplished as soon as the employee can determine earned income (as defined herein), income tax filing status, covered taxable reimbursements for Year 1, and the applicable marginal tax rates. The RIT allowance is then calculated using the gross-up formula under procedures prescribed herein. Since the RIT allowance is considered

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