Relocation Reimbursement or Signing Bonus?

[phw]

An employer is offering a mix of signing bonus and relocation reimbursement, how do I value them?  They are offering enough relocation money to move a family of 4 across the nation, but it's just two of us and no furniture.  So, I'm likely to ask for a lot more of it to be bonus, but not sure how much....all of it?

I *think* that using relocation money will not be counted under normal income tax (I won't receive a 1099 for it and it won't be on W2, I think) and the employer won't pay payroll tax on it.  So, relocation money should be preferred by both parties.

I also *think* that the signing bonus, since it will be paid months before employment starts, might be paid as 1099 income.  This money could be counted as "contractor" income and used to fund SOLO 401(k) and can find personal business expenses to deduct.  Right?  So, there is a decent benefit to me for taking this bonus, especially enough to max a SOLO 401(k), but the employer might pay payroll tax on it, so they might resist.

Do I have this right?

[Zaphod]

phw wrote:

An employer is offering a mix of signing bonus and relocation reimbursement, how do I value them?  They are offering enough relocation money to move a family of 4 across the nation, but it’s just two of us and no furniture.  So, I’m likely to ask for a lot more of it to be bonus, but not sure how much….all of it?

I *think* that using relocation money will not be counted under normal income tax (I won’t receive a 1099 for it and it won’t be on W2, I think) and the employer won’t pay payroll tax on it.  So, relocation money should be preferred by both parties.

I also *think* that the signing bonus, since it will be paid months before employment starts, might be paid as 1099 income.  This money could be counted as “contractor” income and used to fund SOLO 401(k) and can find personal business expenses to deduct.  Right?  So, there is a decent benefit to me for taking this bonus, especially enough to max a SOLO 401(k), but the employer might pay payroll tax on it, so they might resist.

Do I have this right?

Click to expand...

Unless theyre complete idiots, the relocation bonus will also show up as a 1099 or something of that nature. They would lose a tax deduction if they didnt and thats bad business practice. That isnt self employed income and you wont be able to open a separate account with it.

[phw]

interesting Zaphod, you're answer makes the most sense to me, but it's different than what I've found elsewhere, for instance in this thread
https://www.whitecoatinvestor.com/forums/topic/signing-bonuses/

 

 

[Zaphod]

phw wrote:

interesting Zaphod, you’re answer makes the most sense to me, but it’s different than what I’ve found elsewhere, for instance in this thread
https://www.whitecoatinvestor.com/forums/topic/signing-bonuses/

 

 

Click to expand...

Not saying you cant do those things, just technically they dont apply. I love deductions, and risk of an audit is low, but not worth it imo. The important part of that thread is the quoted boglehead post.

[jfoxcpacfp]

Zaphod wrote:

phw wrote:

An employer is offering a mix of signing bonus and relocation reimbursement, how do I value them?  They are offering enough relocation money to move a family of 4 across the nation, but it’s just two of us and no furniture.  So, I’m likely to ask for a lot more of it to be bonus, but not sure how much….all of it?

I *think* that using relocation money will not be counted under normal income tax (I won’t receive a 1099 for it and it won’t be on W2, I think) and the employer won’t pay payroll tax on it.  So, relocation money should be preferred by both parties.

I also *think* that the signing bonus, since it will be paid months before employment starts, might be paid as 1099 income.  This money could be counted as “contractor” income and used to fund SOLO 401(k) and can find personal business expenses to deduct.  Right?  So, there is a decent benefit to me for taking this bonus, especially enough to max a SOLO 401(k), but the employer might pay payroll tax on it, so they might resist.

Do I have this right?

Click to expand…

Unless theyre complete idiots, the relocation bonus will also show up as a 1099 or something of that nature. They would lose a tax deduction if they didnt and thats bad business practice. That isnt self employed income and you wont be able to open a separate account with it.

Click to expand...

That's not exactly right, Zaphod, Employers can treat relocation reimbursements in a couple of ways. The best way is to reimburse under an "accountable" system. The employee submits receipts and the employer reimburses. The employee does not count the reimbursement as income and the employer deducts but does not report as income to the employee. The amount excluded from income is reported with a code P in box 12 of the employee's W2. The excess of moving expenses paid over qualified moving expenses must be returned to the employer or reported as income.

phw, you will get to deduct your moving expenses "above the line" on page 1 of your 1040. If you are ok with paying Medicare taxes on the income, negotiate for a 1099 signing bonus. If they won't put your signing bonus on a 1099, however, you are better off with the moving expense reimbursement as you will pay Medicare taxes only on the excess of the reimbursement over your actual expenses.

[ko]

phw wrote:

 

I also *think* that the signing bonus, since it will be paid months before employment starts, might be paid as 1099 income.  This money could be counted as “contractor” income and used to fund SOLO 401(k) and can find personal business expenses to deduct.  Right?  So, there is a decent benefit to me for taking this bonus, especially enough to max a SOLO 401(k), but the employer might pay payroll tax on it, so they might resist.

Click to expand...

On the signing bonus, I've received a few of these over the last several years during different job changes. For me, all have just shown up as regular W2 income, not 1099 income, even if the signing bonus was paid months before actually starting a job. For example, my job out of grad school paid a signing bonus in March but I didn't actually start working until August. However, note that the signing bonus and start date of work always occurred in the same year for me.

[PNWskindoc]

A little off topic but what actually counts as relocating expenses ? I guess it depends ultimately on the practice but the problem I'm running into is that I don't know if we're going to be able to use up the entire $5k were getting. We don't have much furniture as it is and most of what we do have was purchased from ikea so we don't think it's worth shipping them. So far, we just have airfare for my wife, infant daughter and myself, and shipment of two cars. Would it be kosher to use the relocating stipend to actually buy new furniture when we get there ?

[jfoxcpacfp]

PNWskindoc wrote:

A little off topic but what actually counts as relocating expenses ? I guess it depends ultimately on the practice but the problem I’m running into is that I don’t know if we’re going to be able to use up the entire $5k were getting. We don’t have much furniture as it is and most of what we do have was purchased from ikea so we don’t think it’s worth shipping them. So far, we just have airfare for my wife, infant daughter and myself, and shipment of two cars. Would it be kosher to use the relocating stipend to actually buy new furniture when we get there ?

Click to expand...

What does your agreement say and how are the relo expenses being reported? Is this under an accountable plan, i.e. you're supposed to turn in receipts and pay back the difference? Or is it being reported on your W2?

[PNWskindoc]

Good question. I'll have to ask, but I'm guessing I'll be able to do so in one of those arrangements but not the other?

[ko]

PNWskindoc wrote:

A little off topic but what actually counts as relocating expenses ? I guess it depends ultimately on the practice but the problem I’m running into is that I don’t know if we’re going to be able to use up the entire $5k were getting. We don’t have much furniture as it is and most of what we do have was purchased from ikea so we don’t think it’s worth shipping them. So far, we just have airfare for my wife, infant daughter and myself, and shipment of two cars. Would it be kosher to use the relocating stipend to actually buy new furniture when we get there ?

Click to expand...

I've done several relos and they've generally fallen into two buckets: in one type, I've been given a lump sum that shows up as W2 income. If I don't use it all, I can use the rest for whatever I want (and there have never been any specific stipulations in the relo policy). In the second type, I may be given a cap amount for my relo casts (though not always), but my expenses are billed directly to my employer. In this second case, if I'm given a relo cap and don't use it all, I don't get to pocket the excess.

Just one data point, take it for what it's worth.

[PNWskindoc]

So i do have to turn in receipts and I'll get reimbursed. However, I guess it'll be up to the discretion of the practice whether a security deposit towards a rental or buying new furniture will count as relo?

[jfoxcpacfp]

PNWskindoc wrote:

So i do have to turn in receipts and I’ll get reimbursed. However, I guess it’ll be up to the discretion of the practice whether a security deposit towards a rental or buying new furniture will count as relo?

Click to expand...

Yes, it would be, but it wouldn’t hurt to try. Check your agreement to see how specifically (or non-specifically) it defines reimbursable expenses. The good news is that, done this way, your relo reimbursement is not taxed, under the accountable plan rules. Are you counting mileage, meals, house-hunting trips, hotels, every little expense possible?

[PNWskindoc]

Good point. I'll make sure to include them. Thanks !

[mikewillcox]

I think it is fair for you since you are you are just a member of two, what else could be the expectation of the other family that holds a big members? If that is the case, I guess you just consider providing your own furniture sets.