Has your company ever had to send an employee on a temporary assignment that lasted less than a year? With the amount of growth companies are going through both globally and domestically, many find themselves in a position where they are opening new divisions in different parts of the country. They need a senior member of their staff to get these divisions up and running, only to return to headquarters after the project is complete. If this employee is in their Temporary Assignment location Monday through Friday and returning to their home to see their family every weekend, would you document this as a business trip and reimburse them for mileage? Or would you classify them as embarking on a Temporary Domestic Assignment? Only one answer is correct in the eyes of the IRS and if you don’t document your employees trip correctly, you company could face some serious consequences.
A Temporary Domestic Assignment is defined by the IRS as employment away from home in a single location that is realistically expected to last for one year or less. According to Atlas Van Lines 2017 Corporate Relocation Survey, between 60-80% of companies have a formal short term/temporary assignment policy.
Does your company have a policy in place if you find yourself in a position to move an employee temporarily across the country?
There are a lot of factors to consider when determining if you should set up an employee as a Temporary Assignment versus a Permanent Relocation.
- Cost Factors – There is a big price difference between relocating an employee for a permanent move versus a temporary one. In a temporary assignment, your employee won’t need homesale assistance; which according to the Worldwide ERC 2015 US Transfer, Volume and Cost Survey, average home sale assistance costs were nearly $43,000 per employee. However, they will need a place to stay during their assignment and temporary living can get to be expensive depending on the employee’s location and length of stay. The average daily rate for a corporate apartment is $150.
Another factor that will help control cost with a temporary assignment is that your employee won’t need to ship their household goods, which averages $12,935 per employee. Since your employee will most likely be on this assignment alone, they will want to be able to return home to visit their family every now and then. Your company will need to determine how many return trips your employee will receive or if you will pay for your employee’s family to visit their temporary location.
- Tax Issues – One of the most significant benefits of a Temporary Assignment is the ability to deduct expenses that occur during the assignment.
Before your employee embarks on their temporary assignment, your company will need to provide them with a letter of assignment that details the length and reason for assignment. If the employee doesn’t have this document or it is not updated to include the length of the assignment, the IRS may determine the assignment was for more than one year or indefinite, and they will treat all expenses as taxable. Also, if the assignment length is updated from temporary to indefinite, the expenses become taxable at the time of the update, not when the assignment exceeds one year.
Your employee must also return to their home in their origin location after their assignment is complete in order to be able to count certain expenses as non-taxable. If your employee lives in Virginia, but their Temporary Assignment is in Georgia, then their wages will generally be taxable in the assignment state, this case being Georgia. Your company will be required to withhold the Georgia state taxes not the employee’s origin location of Virginia. If your employee will be temporarily moving from a state with low to no income taxes like Florida, to a state that has very high income taxes like California, it is important to let them know so they can budget accordingly, you may also determine your company needs to adjust their pay to compensate.
Whether your company handles Temporary Domestic Assignments, permanent assignments or both, you will need to have a set policy in place to define each process for your employee. OneSource Relocation can help you create a new policy to include Temporary Domestic Assignments or review your current policy to make sure you are tax compliant. We know you juggle a lot of tasks during the day and we want to help alleviate some of the administrative burdens and help save you and your company time and money.