Senators introduce legislative fix to address tax act’s lingering relocation issue for feds

Two senators are trying to close a loophole that the Tax Cuts and Jobs Act created for a portion of federal employees who relocate for the job.

Sens. Mark Warner and Tim Kaine (D-Va.) have introduced an amendment to the defense authorization act, which would help make a specific population of federal employees — who have or will relocate for their jobs — whole.

The Tax Cuts and Jobs Act, which Congress passed late last year, eliminated the deduction federal employees could previously take to alleviate the costs of relocating and moving their household items. Those moving reimbursements were being taxed as ordinary income, and agencies were compelled to have their employees foot the bill.

The General Services Administration issued a bulletin last month after some prompting from Kaine and Warner. The bulletin authorized agencies to pay the Withholding Tax Allowance and Relocation Tax Income Allowance to cover the taxes on these expenses that impacted employees had been forced to pay on their own.

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GSA’s guidance applies to many, but not all, federal employees who have or will relocate for work in fiscal 2018 — about 14,353 workers in total, according to a spokeswoman for Warner.

But about 5 percent of the 14,353 impacted employees still aren’t covered under GSA’s recent administrative fix, the spokeswoman said. These include new hires, who move to a new location to accept a federal position, and senior executives eligible for “last move home,” an obscure benefit  for career members of the Senior Executive Service who move upon retirement from federal service.

Specifically, the senators’ amendment would serve as the proper vehicle to reimburse employees in these situations for any federal, state and local income taxes they incurred on their travel, transportation and moving expenses. The provision would be retroactive as if enacted on Jan. 1, 2018, the amendment reads.

The Senate is considering amendments to the 2019 National Defense Authorization Act this week.

The relocation issue first came to the attention of the Senior Executives Association in April, which had heard from some impacted employees who had received bills for $3,500 and $6,000 from their agencies. In particular, employees at the the Agriculture, Defense, Homeland Security and Justice Departments, as well as the Federal Aviation Administration, had felt the impacts of the tax act’s unintended consequences.

Since then, Warner and Kaine had written to GSA Administrator Emily Murphy, urging her to work quickly with the Treasury Department to adjust current travel and relocation policies to comply with the provisional changes in the new tax act.

GSA issued a bulletin on May 14, which allows agencies to begin reimbursing employees who qualified for relocation reimbursements under the prior federal travel regulations and received “some or all reimbursements, direct payments, or indirect payments on or after Jan. 1, 2018.”

Moving forward, GSA advised managers to adhere to the guidance in the bulletin until it issues a new federal travel regulation amendment to address changes in the Tax Cuts and Jobs Act.