Is My Relocation Package Taxable?

What Is a Relocation Package?

Relocation packages cover or defray the cost of moving to a new location for your job. Employers may offer these benefits to new hires as an incentive to sign on in a tight labor market. They may also provide relocation benefits to employees who are transferring from one location to another.

In any scenario, moving is expensive. Corporate relocation group American Relocation Connections estimates the average relocation package costs employers between $19,309 and $24,216 for renters and between $72,627 and $97,116 for homeowners. These costs may include the following:

• Packing and moving
• Travel
• Short- or long-term housing
• Storage
• Moving insurance
• Employment assistance for your spouse
• Home sale/purchase
• Tax assistance

Although some relocation packages will cover the total cost of a move—from packing and transporting your household goods to plane tickets for your family and pets—many provide either a lump sum benefit or limited reimbursement.

Here are four types of relocation packages employers may offer:

• Lump sum: Your employer gives you a set amount of money to help pay for your move; you decide how to spend the money.
• Reimbursement: Your employer reimburses you for qualified moving expenses, usually up to a certain limit.
• Direct payment: Your employer pays for moving expenses directly, usually through selected or approved vendors.
• Relocation services: Your employer may hire a relocation service to manage your move. Relocation specialists can coordinate movers, arrange temporary housing, book plane tickets and more.

Relocation Packages Vary Widely

Relocation packages can range from a few thousand dollars to nearly $100,000. Generally speaking, high-level executives get the most comprehensive relocation packages, but workers in competitive industries and new hires in tight job markets might negotiate relocation benefits as part of their signing packages. If you're considering a job or transfer that will require you to move, a relocation package certainly sweetens the deal.

Because every relocation package is different, it's important to understand what your offer includes—and how it compares to your projected costs. Also find out how the process works, so you can work with approved vendors or stay within spending guidelines if need be. If your relocation package won't cover all your moving expenses, take a hard look at how much the move will cost you out of pocket and whether the overall job opportunity will pay off in the long run. Relocation benefits are part of your overall compensation. Understanding how they work is key to sizing up a job opportunity.

Could a Relocation Package Change Your Tax Situation?

The IRS considers relocation benefits taxable income. Through 2025, the IRS requires employers to include moving expense reimbursements in your reported wages. This includes direct payments to movers or airlines and payments made to relocation services for your benefit. Some things to keep in mind about relocation packages as taxable income:

• Income taxes may be withheld from your relocation money. If you receive a payment from your employer, it could be subject to withholding. Say you normally have 30% of your paycheck withheld for federal, state and FICA taxes: A $6,000 relocation benefit could net you only $4,200 in a lump sum or reimbursement.
• Some employers include taxes in their relocation payments. Because withholding can take a sizable bite out of your moving reimbursement, some employers "gross up" their benefit by adding money for taxes. In this case, you would net the $6,000 you were counting on by having your employer pay an additional $3,700 to cover your taxes (roughly $2,600 to reach a net payment of $6,000 and another $1,100 to cover taxes on the $2,600 addition). "Grossing up" costs your employer more, but saves you the burden of planning for and paying additional tax.
• You may owe taxes if money is not withheld. If your employer pays a relocation service or other vendors on your behalf, you may end up owing taxes on the benefit, even if you never receive any money directly. You may want to speak with your tax advisor for help in figuring out how to plan for this additional tax bill.

Are Moving Expenses Tax Deductible?

Your new employer has given you a $3,000 relocation benefit to cover part of your move. You paid out much more than this to relocate yourself and your family. Are your unreimbursed moving expenses tax-deductible?

In most cases, moving expenses aren't tax deductible—thanks again to the TCJA. Unless you are active-duty military being ordered to a new permanent station, moving expenses are not deductible on your federal taxes through 2025. If you are active-duty military and think you might qualify for this deduction, see IRS Form 3903 for more information.

A handful of states still allow deductions for qualified moving expenses on state income taxes. Though requirements vary from state to state, deductions typically include the cost of moving services, travel and mileage, storage and more when you move out of commuting distance for your job. Commuting distance is often defined as 50 miles plus your current commute. The following states allow some deductions for qualified moving expenses:

• Arkansas
• California
• Hawaii
• Massachusetts
• New Jersey
• New York
• Pennsylvania

Check with your state taxing authority or your tax advisor for details on how to claim a deduction for moving expenses in your state.

The Bottom Line

Getting financial help from your employer can make a job-related move easier to manage. But if your employer offers a relocation package or smaller lump sum for moving expenses, make sure you understand the tax implications upfront. Your employer may agree to gross-up your relocation money to cover your taxes. If not, you may net less money after taxes to pay for your move.

Having your finances in order can be critical during a move. Managing your moving budget, covering reimbursable expenses, selling and purchasing a home (or negotiating your way out of an old lease and into a new one) and taking your employer's assistance and its tax implications into account are all major financial tasks. Throughout the process, good credit can help you get approved for rentals or secure the best rates and terms on everything from credit cards to home loans. You can check your credit report and score for free any time on Experian, so you can better understand your options as you make your move.