Update on Taxable Moving Allowances

posted October 25, 2018

FEA and NEA, along with other associations representing federal civilian employees, continue to push Congress to enact relief for incoming and outgoing feds who are facing massive tax bills for relocation allowances/assistance they received in calendar year 2018.

The tax liability for relocation aide is the result of the Tax Cuts and Jobs Act of 2017, passed by the current Congress, which unfairly put this tax burden on federal employees.

While bi-partisan legislation to help these workers was introduced in the U.S. Senate this past summer, that legislation has gone nowhere thus far, due largely to the partisan in-fighting over the recent Supreme Court appointment, election posturing and a lack of support from Congressional leadership and the White House.

With both the Senate and the House of Representatives currently recessed until after the November election, there is no chance of movement on this legislation for at least several weeks. It is hoped the release this week of information on the impending tax burdens affected civilian workers who relocated in 2018, not just in DoDEA but throughout the federal government, will create an atmosphere of urgency that may revive interest in the proposed legislation.

We must caution, however, that passing any legislative fix affecting the 2018 tax year remains increasingly difficult, particularly as we near the end of the calendar year. Still, FEA and NEA will continue to work for such a fix. To leave the situation as it is would be completely unfair to employees who have dedicated themselves to public service. There is no justification for placing an unfair tax burden on those retiring/separating from federal service or on those just entering the federal service as new employees.

The fact DoDEA is apparently still not informing the new hires it recruits about this tax situation, so they can make an informed decision prior to moving overseas and learning of the tax debt they will owe, is unconscionable and yet another example of the poor state of DoDEA management.

For current employees who moved in 2018 from one duty station to another for the benefit of the government (including those in DoDEA who received transfers, were excessed to a new location or made other management-directed moves), the notices sent this week are a reminder that you will also owe taxes under the new tax code. However, thanks to the efforts of FEA/NEA and other employee unions earlier this year, such employees are eligible to be reimbursed for "substantially all" the federal and state taxes they pay on the relocation assistance/allowances they received in 2018 for their moves.

Such reimbursements will come from the Relocation Income Tax Allowance (RITA) and Withholding Tax Allowance (WTA) authorized earlier this year by OPM (see this May 2018 update from FEA for info on those reimbursements).

What is not yet clear is exactly how much of a tax liability employees will face or exactly how and within what time frame the tax debt will need to be paid.

Indications are DFAS is still in the process of calculating tax liability amounts and will be informing affected employees, probably early in 2019, of the amount their taxable incomes for 2018 will increase because of the value of relocation allowances/assistance they received within that year.

DFAS has also indicated it will share information at that time about how the added tax debt can paid. The apparent options will be to pay off the entire debt within 30 days (which would require most employees to take out some sort of loan) or to pay in installments.

As best we can understand the process as it normally works: Once an employee has filed their 2018 taxes, reflecting this added taxable income due to relocation allowances/assistance, the employee could then file for RITA to be reimbursed for the added tax burden incurred. The timeframe for how long it would take for RITA applications to be processed and payments to be made to individuals is not clear.

DFAS is also expected to provide details on that RITA application process in the weeks ahead.

The long and short of it is: Existing federal employees who moved in 2018 for the benefit of the government SHOULD have "substantially all" (that is the term used by DFAS) of their added tax liability reimbursed to them; new employees and retiring /separating employees will not, unless Congress and the White House agree to act on the proposed tax relief legislation before the end of the year.

FEA/NEA will continue working with the sponsors of the legislation and supporters of this issue via every available legislative vehicle that MIGHT move during the upcoming Lame Duck session. After the election, we will also put together a new action alert for the NEA's Legislative Action Center to engage our members for a Lame Duck push.

FEA is NOT giving up this fight!

You can view information from DFAS about this tax issue by going to this page on the DFAS web site.