The relocation tax gross-up math, now permanent.
OBBBA (One Big Beautiful Bill Act, signed July 2025) made the TCJA 2017 elimination of relocation tax-exclusion permanent. As of 2026 and indefinitely forward, nearly all employer-provided relocation reimbursements are taxable wages to the employee. Without gross-up, the employee receives a benefit that triggers a federal tax bill they often can't afford. With gross-up, the employer pays the tax bill on top of the benefit — at typical multiplier 1.42x.
1.Worked example
Tier 2 mid-senior manager relocating from Boston to Austin. Total net benefit needed: $30,000 (household goods + 60-day temp housing + home-finding trip + miscellaneous allowance).
| Line | Amount |
|---|---|
| Net benefit to employee | $30,000 |
| Federal supplemental (22%) | $8,797 |
| FICA (7.65%) | $3,061 |
| State (Texas — 0%) | $0 |
| Gross payment to employee (taxable) | $42,254 |
| Effective multiplier | 1.42x |
Same example but employee moving to California (13.3% top marginal): multiplier rises to ~1.65x, gross payment to ~$49,000. The state-tax tail compounds the federal cost.
2.State variation
Zero-state-tax (gross-up multiplier unchanged at 1.42x): Texas (0%), Florida (0%), Nevada (0%), Washington (0%), Tennessee (0%), South Dakota (0%), Wyoming (0%), Alaska (0%).
High-state-tax (gross-up multiplier 1.55x-1.65x): California (top 13.3%), New York (10.9%), New Jersey (10.75%), Hawaii (11%), Massachusetts (9% on >$1M).
Seven states preserved pre-2017 federal treatment for state-tax purposes: CA, NY, NJ, MA, PA, AR, HI.
3.Why OBBBA permanence matters
Before TCJA 2017, IRC §132(g) excluded qualified moving expenses from employee income. Pre-tax companies paid for relocations and the employee saw nothing on their W-2. TCJA suspended this exclusion for tax years 2018-2025; OBBBA (July 2025) made the suspension permanent. The structural effect: corporate relocation costs are roughly 42% higher than the pre-2017 economics for the same benefit delivery.
Many companies have responded by:
- Shifting toward lump-sum + core/flex structures (employee chooses which components to take)
- Capping gross-up on miscellaneous allowances
- Reducing Tier 1 GBO (Guaranteed Buyout Option) coverage
- Negotiating BVO (Buyer Value Option) home-sale programs which save ~$15K per move vs direct reimbursement with gross-up
4.Exception: active-duty military
Active-duty military and intelligence-community personnel under permanent change of station orders retain pre-2017 treatment. Federal employees use the Relocation Income Tax Allowance (RITA) defined in 41 CFR Part 302-17 — gross-up based on Combined Marginal Tax Rate. This is the most-cited primary methodology reference for private-sector policy design.
5.Implementation note
Gross-up calculation runs at payroll time. Some companies calculate gross-up at the end of the tax year (W-2 true-up); others gross-up at the time of each individual reimbursement. Year-end calculation produces cleaner W-2 numbers but creates cashflow timing issues for employees who can't cover the upfront tax bill. Per-reimbursement gross-up adds payroll administrative cost but better employee experience.
Sources: Foster Garvey OBBBA analysis · Kona HR tax-rules summary · 41 CFR Part 302-17 (RITA) · Verified 2026-06-03.