By Ms. Mary Ann Davis
Installation Management Command
SEMBACH KASERNE, Germany–The Tax Cuts and Jobs Act passed in December 2017 made the majority of government civilian employee relocation entitlements taxable, causing some concern and confusion over what elements would be taxed.
The Defense Finance and Accounting Service and U.S. Army’s Personnel Division held a town hall here to provide transparency and answer questions regarding civilian relocation taxable entitlements at the Installation Management Command-Europe’s Workforce Development Center, March 12. (Editor’s note: Two sessions were held in Stuttgart t the Kelley Fitness Center, March 7-8.)
“I know this is a sensitive subject, and it’s been a little over a year now since the tax law was implemented in December of 2017,” said Shannon Coppinger, DFAS deputy director of Corporate Communications. “Since that time, we’ve worked with the IRS, [General Services Administration], [DFAS] internal general council as well as DOD general council to make sure we are implementing the law according to how it was put forward.”
According to Coppinger, civilian permanent change of station orders issued prior to 2018 and reimbursements received for those moves were not affected by the TCJA, only the moving expenses paid in 2018 that were taxable prior to the TCJA were reflected as income on civilians’ travel W-2s.
Travel reimbursement claims processed between Jan. 1 – Oct. 29, 2018, did not reflect the accurate amount of taxes withheld in accordance with the TCJA. To correct this, DFAS implemented a system change Oct. 30, 2018, to properly calculate the tax withholding and pay that amount to the IRS on the travelers’ behalf. Travelers are responsible for reimbursing DFAS, which resulted in more than 3,500 debt letters issued in February. Travel W-2s that reflect the withholdings paid by DFAS to the IRS were issued to travelers and should be included when they file their 2018 income taxes by the IRS deadline.
Travel claims processed on Oct. 30, 2018, and later reflect the appropriate amount of tax withheld from reimbursements per the TCJA, and no debt will be owed by travelers to DFAS.
Although moving expenses paid to third-party vendors for entitlements like temporary storage were properly calculated, corrected W-2s and tax debts may be incurred for Household Goods shipments and other PCS entitlements paid to third party vendors. DFAS is currently working on a secondary system change to properly withhold taxes from third-party vendor payments to rectify the issue.
According to DFAS, the following are taxable PCS entitlements:
- En route travel, lodging, meals and transportation including individually billed account and personally procured airfare, government-issued airline tickets-commercially billed account, privately owned vehicle mileage, tolls, taxis, etc.,
- All House Hunting Trip expenses, including Government Procured Airfare and per diem,
- All Temporary Quarters Subsistence Expenses, including lodging and meals,
- All real estate expenses,
- Non-temporary household goods storage (CONUS),
- Temporary HHG storage,
- Miscellaneous Expense Allowance,
- Relocation services (i.e., Home Marketing Incentive Payments, property management, etc.),
- Withholding Tax Allowance,
- Relocation Income Tax Allowance,
- Household Goods Shipment,
- Privately Owned Vehicle Shipment (CONUS) and
- Mobile Home Transportation.
The above entitlements are taxed at a mandatory 22 percent federal income tax withholding, 6.2 percent Social Security tax and 1.45 percent Medicare tax. Since state and local taxes are not withheld, people must determine if relocation wages are taxable under their current state and local government laws and regulations.
What PCS expenses are exempt?
- Long-term storage of household goods for employees with duty assignments outside the continental United States.
- Privately owned vehicle shipments to, from and between overseas locations; and
- Residential sales conducted through the agency relocation services company home sale program.
According to DFAS, travelers may file a claim for Relocation Income Tax Allowance after filing their income tax returns for the year their PCS reimbursement was received. These claims are used to ease the federal and state burden associated with their PCS move. RITA can be used by all civilian travelers except:
- New appointees,
- People assigned under the Government Training Act, and
- Individuals returning from overseas assignments for the purpose of separation from government service (to include retirees).
Travelers can elect Withholding Tax Allowance, which serves as an advance on RITA and is deducted from any RITA reimbursement computed in the following year. WTA protects travelers from having to use their relocation expense reimbursements to pay for federal income tax withholding. It is calculated on federal income tax withholding only and does not cover state, local, social security and Medicare taxes and is taxable as well.
Instructions for filing RITA can be found on the DFAS website or view this eTutorial:
Travelers can elect WTA by filling out the WTA employee agreement form and submitting it with their PCS claims. If WTA is elected, travelers must file a RITA claim within the first 120 days of the following calendar year.
For more civilian relocation information, visit the DFAS website.
