Transcript Slide 1

“ Renters Are People Too! “
Moderator
Bob Ludwig, Reads Moving Systems
Panelists:
Sylvia S. Ehrlich, The Intrepid New Yorker, LLC
Robert J. Nish, Esq., SCRP, ROBERT J. NISH, P.C.
David S. Oltman, Relocation Taxes, LLC
ERC Survey Results 2009
Avg. cost to transfer a Renter
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Current Employee - $20,750.00 (7% decrease)
New Hire -$17,877.00 decrease (3% decrease)
Avg. Cost to transfer a Homeowner
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Current Emp. - $90,017.00 (18% increase)
New Hire - $66,610.00 (8% increase)
ERC Survey Results 2009
Home owning Transferees Choosing to Rent
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66% of Companies Reported an Increase
33% encourage Homeowner Transferees to Rent
12 Companies offered incentive to Rent
21 policy changes in 2009
Only 1 dealt with Renters
Why increasing number of Renters
Joint Center for Housing at Harvard Reports
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Elevated Vacancy Rates
Record foreclosures
Expiration of the Tax Credit
High unemployment
Severe housing cost burdens
18.6 million households are spending half or more of their income on
housing
What Are Companies Experiencing?
Increase in…
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Commuter Assignments
Temporary Assignments
Lump Sum Payments
Rental subsidy
Case Studies
Presented by:
Sylvia S. Ehrlich, SCRP
President
The Intrepid New Yorker, LLC
International Dilemma
Family of five arrived in NYC with no credit history
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Challenge
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Solution
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Got corporate client to agree to act as guarantor
Negotiated security deposit
Results
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Identify appropriate rental property (cost, size, and schools)
Landlord not willing to accept less than six months security deposit for
their “perfect” apartment
Secured with two months deposit
Other options…
Repatriation Dilemma
Executive repatriated back to home in New Jersey
(family of seven + pets)
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Challenge
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Solution
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Home still under lease (five months remaining)
Children needed to go back to their respective schools
Identified empty builder new property
Paid over value and gave a high security deposit
Rented furniture
Results
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Children attended their right schools
Family settled back into their neighborhood without a legal crisis
or issues
Domestic Transfer Dilemma
Executive’s property remained unsold in the departure
location
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Solution
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Mortgage was above the current value of the home
No company guarantees against the loss on the mortgage
Limited Equity
Looked to identify lease to purchase properties
Worked with the corporate client to provide delayed relocation
benefits beyond the standard one year term
Identified a home with affordable rent and delayed purchase
option in the destination location
Results
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Family could be together while the departure home continued to be
marketed for sale
Legal Implications
Presented by:
ROBERT J. NISH, P.C.
ATTORNEYS AT LAW
A PROFESSIONAL CORPORATION
163 WASHINGTON STREET
MORRISTOWN, NJ 07960
(973) 539-5050
[email protected]
ROBERT J. NISH, SCRP
NOËLLE K. NISH, CRP
Rental Contracts/Leases
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Realtor® prepared format
Attorney prepared
Writing required
State law specific
Temporary housing
Use & Occupancy
© 2010 ROBERT J. NISH, P.C.
Terms & Renewals
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Length of Lease
 Month to Month
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Foreclosure Issues
© 2010 ROBERT J. NISH, P.C.
Deposits
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Allowable Amounts
 Held by Escrow Agents
 Held by Property Managers
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Returns
© 2010 ROBERT J. NISH, P.C.
Specific Clauses
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Diplomatic clause
Pet issues
Repairs
Commissions
Inspections
© 2010 ROBERT J. NISH, P.C.
Breaking a Lease
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Legal remedies and consequences
No Self Help
Early Termination
Failure to Vacate
Damages
© 2010 ROBERT J. NISH, P.C.
2010 Tax, Legal & Payroll Issues
Presented by:
David S. Oltman, CRP
President & CEO Relocation Taxes, LLC
New 2010 Corporate Tax, Legal &
Payroll Issues
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The Economic Stimulus Act of 2008/9/10
Renter Issues…
Without moving W-2 reportable expenses:
MFJ < $150,000 = $1,200 rebate (phase out - $174,000)
SNG < $75,000 = $600 rebate (phase out - $87,000)
Children = $300 rebate per child
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What rebate was lost in 2008, will usually be regained in tax year 2009
or 2010. A Fairly Complex Calculation.
Recommendation: Do nothing until 2010/2011 – and then only after doing
a complete gross-up audit in 2011 of the employee’s 2010 tax return.
Cost usually between $225 to $325 per audit.*
*Business Expense. Not taxable.
New 2010 Corporate Tax and Payroll
Issues
1) AMT Tax (Alternative Minimum Tax) effects – could effect 10 times more
taxpayers, “Target” result is the corporate transferee. (higher gross-ups).
See RTA p.10 & page 40.
2) All Tax Brackets where indexed for inflation (significant lower gross-ups in
2010 could be higher in 2011) See RTA p.11. Brand new – lower phaseouts for 1% itemized deductions (went from 3% to 2% to 1% to 0% in
2010) - and lower phase-out for personal exemption amounts 1/3
reduction and a new minimum of $2,333 ($3,500 x. 66.67%) per personal
exception. 0% in 2010. Average savings of $375/move.
Potential 2010 or 2011 higher tax rates – gross-up impact. 60%
total tax rate = a 150% gross-up.
3) Temporary Assignments. How states are catching employees who do not
report their wages. Tax Amnesty. Hotel & credit card gas receipts. IRS
Employment Tax Audits Begin in 2010 and will run through 2013.
4) Reduced Home Sale Exclusion & New Home Buyer Tax Credit
($8,000/$6,500). Very Complex. See RTA – p.40 IRS Form 5405
5) New 2010 HUD-1 Form – Special attention should be given to line 801 –
See RTA page 32.
2010 Huge Tax Issues
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Temporary Assignments – 1 year rule – business vs. taxable. See RTA pages 8 & 9 also
Revenue Ruling 93-86. New Trend to “reconcile” state taxes – “Keep Employee Whole For
State Income Tax ”. New Proposed Tax Bill – H.R. 2110 - “30 Day Rule” (was H.R. 3359 60 day rule). “Mobile Workforce State Income Tax Fairness and Simplification”. The
methodology used is to calculate what the employee “would have paid” in Federal and
State/Local taxes (in the “live state”) – then compare that amount to what the employee
“actually paid” in Federal and State/Local taxes (in the temp. “work state”). The
difference between those two amounts is the amount due the employee. Some issues to
consider are:
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a)
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d)
e)
Any State income tax dollars that were “advanced” or “loaned”
The taxability of “advances” or “loans”
Multi-state tax credits taken or not taken on state tax returns
Non-Resident and Part-Year Resident state tax returns
Administration of the program – “loans”, “advances” and “repayments”
*Proposed Effective Date 1/1/2011 – See RTA p. 13
2010 Tax and Payroll Issues
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Capital Losses on home sales are NOT deductible. See RTA page 2
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The Mortgage Forgiveness Debt Relief Act. “Short Sales” no longer taxable, Negative
Equities and Loss on Sales.
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First Time Homebuyers Credit: $8,000/$6,500 (MFJ $225,000; SNG $125,00) start of
phase out range. Need to be in contract before 5/1 and close before 10/1. Three year
pay back period. See IRS Form 5405 Very complex. Three (3) year payback provision.
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Making Work Pay Credit: – A maximum $400 to $800 credit Phase out range (Single
$75,000 - $95,000 and then MFJ $150,000 - $190,000)
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Average Gross-up Percents – Could go from 60% to over150% based on proposed 2011
tax changes.
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(H.R. 5297) New law which require individuals who rent out their property who are
considered to be engaged in a trade or business for purposes of information reporting to
provide a 1099 to persons who provide goods or services to them aggregating over
$600 during the year in connection with the rental. This provision is effective for
payments made starting in 2011. This is a brand new issue, while further guidance is
expected, it is not necessarily guaranteed. This is an added burden for the corporate
transferee – just another argument for providing tax preparation assistance to domestic
transferees.
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Average Gross-up Percents – Could go from 60% to over150% based on proposed 2011
tax changes.Companies should Focus on “Total Costs” – not just a fee (i.e. $50/move
vs. $12,000 Gross-up)
IRS 2010 Tax Forms:
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RTR - "Relocation Tax Report" - replaces old "IRS Form 4782“. See RTA p. 21
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3903 - "Moving Expenses" - taxpayer required. See RTA p. 25
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Sch. D - "Capital Gains and Losses" - replaces old "IRS Form 2119"
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New 2011 Federal, State, Local and F.I.C.A. (Social Security – 6.20%) $106,800
& Medicare 1.45% unlimited) tax brackets. The 2010 FICA/Medicare brackets –
remain the same as in 2009 as well.
Penalties for Failure to Withhold taxes
on a timely basis.
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Most all relocation expense reimbursements or supplemental wage
payments are subject to withholding at the time of payment. Most
companies use the Supplemental rate of 25% and apply a gross-up
percentage. Accountable Plan rules apply, using the 30/60/120 rule.
Taxable moving expenses (lump sums) are treated as if they were paid
under a "non-accountable" plan. An average penalty of $8,000 per move
could cost a company that relocates 200 employees per year, 1.6 million
dollars for each year of non-compliance.
Tax Saving Strategies
(Withhold/Gross-up/Lump Sums)
1) When ever possible, always look for a business purpose for an expense. For example,
Moves less than 1 year (temporary assignments), a Pre-employment physical, House Hunting
Trips as business trips (breakout spouse expenses). Use a TP Home Sale Company or
Qualified In-House Program. Tax Gross-up Savings over $9,000 per move
2) Have trained accounting/relocation tax expense professionals tax code and audit all
expenses entered from the transferee's expense report. Average cost is $300 to $500
per move
3) Do not include either Van Line or Final Move expenses in a "Lump-Sum" allowance. Why?
Because not taxable when receipts are provided. Employees can still deduct their moving
expenses even if they receive a lump sum that is taxable and grossed-up. Lumps Sum
Software $25 to $75 per move. Rates available for continental U.S., Alaska, Hawaii and
Canada
4) Re-capture any FICA overpayments – Year-end “true-up” – only adjust for “negatives”
differences. Tax Gross-up Savings over $1,000+ per move.
5) Explain/Educate employees with regard to how their gross-up was calculated.
Priceless!!!!!
Hot 2010 Relocation Trends
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Year-end “true-up” or “difference” or “delta” calculation. Negatives only “adjustments”.
Big savings in gross-ups Average gross-up is over $10,000. (Average savings over
$2,000 per move).
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Only gross-up at supplemental rate [ 25% ], let transferees come back and request
more. Gross-up Audit after the fact. (Average savings over $1,000 per move).
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Companies no longer automatically grossing-up for FICA (6.20% + 1.45%) $106,800
maximum. Same in 2010 – New 2011 rate remains unchanged.
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Lump Sums – Becoming very popular, software is available. $25 - $75
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Expense Management Audits – Relocation Accounting Audits. (Average costs $325
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per audit or several thousand dollars to audit a “batch” of records).
Reconcile State Taxes for employees who go on a temporary assignment. Gross-up
wages for extra state taxes when needed. Gross-up Audits – for AMT, WPC and Lost
Credits. Cost $325 per move
10 Things Every Employee Should
Know Before Considering a Move
1) Income will be inflated due to moving expenses paid by your company.
your federal and state withholdings are sufficient to cover the increase.
after the move, most transferees are more likely to be under withheld.
contact your tax advisor. See RTA p.7 Also, If your company paid your
can NOT deduct it on IRS Form 3903.
Make sure that
Also, the year
If in doubt,
Van Line bill, you
2) Make sure that a state W-4 form has been prepared and given to your payroll
department so that withholding is being taken out in the proper state. YOU ARE
REQUIRED TO HAVE WITHHOLDING TAKEN IN THE STATE THAT YOU WORK IN, EVEN
IF YOU ARE A RESIDENT OF ANOTHER STATE! This should become effective the first
paycheck received in the new place of employment. See RTA p.7, 12 and 13
3) In addition to the state, your new city may also require tax to be withheld. Review your
first pay stub to make sure that this is being done (if applicable).
4) Keep in mind that excess FICA withheld from two or more employers is refundable, Line
65 IRS tax form 1040. Affects both working spouses.
5) You have up to two years to satisfy the time test, to establish permanent residency, in
order to deduct moving expenses.
10 Things Every Employee Should
Know Before Considering a Move
6) Special costs, that are unique to you, are also deductible as moving expenses such as
pets, horses, aquariums and tips paid to “movers & packers. No limit on the number
of cars that can be moved and deducted. See RTA p.4
7) The cost of moving students, from their college to the new location, is deductible.
8) In the year that you move, remember that any non-amortized points on a refinanced
loan can be deducted if you sell your house. See RTA p.8
9) Premature distributions from pension plans are not only taxable as income but incur a
10% penalty unless rolled over within 60 days. There is often a misconception how
the rules for first time homebuyers work. Also in the year of a move, income is
inflated and this is probably not a good time to take an early distribution.
10) The year after the move, significant potential for under withholding penalties exist. It
could be hard to meet any of the safe harbor rules: Owe<$1,000, or pay at least
100% of last year’s liability, if AGI is >$150k, then pay 110% of last years liability.
See RTA p.7
Money Saving Gross-up Policy
Administrative Opportunities
2010 GROSS-UP DECISIONS
YES/NO
Additional Cost Per Move*
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Use Tax Tables
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Several Thousand Dollars
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State Taxes
$1,000
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Moved To / From / Both ?
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Include Fed. in State
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$350
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Local Taxes
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$150
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F.I.C.A. Taxes
Med
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SS / Med / Both SS $1,000 /
$250
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F.I.C.A. Circular Logic
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$400
Money Saving Gross-up Policy
Administrative Opportunities
2010 GROSS-UP DECISIONS
YES/NO
Additional Cost
Per Move*
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Deduction/Exempt. Phase-out
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$275 (No 2010
phase-out)
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Assume Itemized Deductions
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$600 (New GST)
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Gross-up "Unqualified" Moves
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$5,800
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Misc. Expense Allowance
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$4,000
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COLA / MIDA
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$6,000
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$0.50/$0.165 cents per mile
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$150
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Loss on Sale
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$10,000 to
$50,000+
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AMT, WPC, First Time HB Credits
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$1,000 - $20,000+
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Annualize New Hire Salaries
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Several Thousand
Dollars
Money Saving Gross-up Policy
Administrative Opportunities
2010 GROSS-UP DECISIONS
YES/NO
Additional Cost
Per Move*
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Look at Non-itemizers (Renters)
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$500+
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Economic Stimulus Package
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$0 to $2,000+
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Third Party Home Sale Company
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$9,000
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Other
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58% to 60% of
Benefit Paid
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The dollar amounts presented are estimates only. The actual dollar amount
will vary based on the total cost of the move, what state is used for tax
purposes, and of course the company's relocation tax gross-up policy.
* Savings documented well over $1,000 per move.
Copyright Relocation Taxes, LLC 2010