Fedweek

Tax policy changes enacted late last year have had the unintended impact of penalizing many federal employees who receive relocation benefits, a group of employee organizations has said.

In a letter they asked GSA and the Treasury Department to provide relief from an additional tax hit that they called potentially “ruinous to affected employees.”

The letter says that many employees “are being presented with exorbitantly large bills for taxes owed, due to a change that eliminates the tax deduction exception for household goods services, but does not affect home sale’s excludable tax status. In practice, the policy has meant that many federal employees who relocate (or were previously relocated) to a new duty station – approximately 25,000 annually – are facing “gross-up” tax bills that, in some cases, are so large as to essentially negate the total value of one or multiple employee paychecks.”

“It is our understanding that this impact is causing employees to face financial hardships, decline to accept new assignments, or even leave federal service,” adds the letter from groups whose members mainly are at the managerial or executive-levels.

They said the issue could be resolved administratively, without another change in law: extending certain tax benefits already applying to relocating federal employees so that they would also cover the value of households goods moving allowances, which previously were separately tax-exempt.