Should relocation expenses be paid through payroll?
Mia Ramsey
Published Feb 25, 2026
The short answer is “yes”. Relocation expenses for employees paid by an employer (aside from BVO/GBO homesale programs) are all considered taxable income to the employee by the IRS and state authorities (and by local governments that levy an income tax).
Is employee relocation taxable?
When you give a relocating employee any sort of relocation benefit—whether it’s in the form of a signing bonus, reimbursement for moving expenses, or even when you book a flight or pay for a service on behalf of your employee—that money and/or those services are considered taxable income.
How do you account for relocation expenses?
Debit “Relocation Benefits” or “Moving Expenses” for the same amount. For example, if you issue a $25,000 relocation benefit, credit the accrual account $25,000 and debit the expense account $25,000.
How are relocation benefits paid to an employee?
Erica is set to receive a $5000 bonus and a $10,000 lump sum towards her moving costs. Erica’s employer pays an additional $5500 to the IRS on Erica’s behalf. This $5500 consists of the $4500 tax due on Erica’s relocation benefits, plus the “tax on tax” of the gross-up benefit.
Do you need to consider taxes when relocating an employee?
To overcome this and keep relocation packages competitive, one option is to cover these additional taxes that employees incur by grossing up the benefits by the amount of extra taxes incurred. If you are relocating employees internationally, then you also need to consider any tax implications in other countries.
Do you have to pay gross up for relocation?
Gross-up payments can be one of the employer’s largest relocation expenses. While it is considered typical and best practice, employers are not obliged to gross up relocation benefits. Some employers compromise and gross-up only some relocation benefits.
Can a company keep the cost of relocation down?
Often the employee will keep relocation costs down and pocket the rest of the payment; this can lead to a bad move and many companies are moving away from these packages.
