Relocation Bonuses and Taxes: What Employers Need to Know

In today’s competitive job market, companies often sweeten offers by helping new hires relocate. A relocation bonus, sometimes called a signing or moving bonus, provides employees with upfront cash to offset moving expenses like housing, transportation, or temporary lodging.

While relocation bonuses can be a powerful tool for attracting talent, many employers overlook a critical detail: tax treatment. Unlike traditional moving expense reimbursements, relocation bonuses are considered taxable income. That means employers must handle them carefully to stay compliant and avoid unexpected surprises for both the company and the employee.

How Relocation Bonuses Work

Employers typically structure relocation assistance in two main ways:

1. Lump-Sum Bonus
   
   • The employee receives a one-time payment to cover moving costs.
   • Offers flexibility but places responsibility on the employee to manage spending.
     
2. Expense Reimbursement
   
   • The employee submits receipts for moving-related costs, and the employer reimburses them.
   • Provides more control for the employer but adds administrative work.

Regardless of structure, both methods are treated the same way for tax purposes.

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Tax Treatment of Relocation Bonuses

Since the Tax Cuts and Jobs Act (TCJA) of 2017, most moving expenses are no longer deductible for employees, except in very limited cases (such as certain active-duty military moves).

For employers, this means:

• Relocation bonuses are taxable wages. They must be included in the employee’s gross income.
  
• They are subject to federal income tax withholding, Social Security, and Medicare (FICA) taxes.
  
• At the state level, bonuses are also subject to income tax withholding, including in California and other states with their own rules for supplemental wages.

So, in short, even if an employer intends the bonus to “cover” moving costs, the employee will see part of it withheld for taxes.

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Employer Responsibilities

When offering relocation bonuses, employers must ensure:

1. Proper Withholding
   
   • Employers can use either the flat percentage method (22% federal rate as of 2025 for supplemental wages under $1 million) or the aggregate method, where the bonus is added to regular wages for withholding.
     
2. Accurate Reporting
   
   • Relocation bonuses must appear on the employee’s Form W-2 as part of taxable wages.
     
3. Clear Communication
   
   • Employees should understand that the “$10,000 relocation bonus” they receive won’t be the same amount they take home after taxes. Misunderstandings here can create dissatisfaction and erode trust.
     
4. Gross-Up Option
   
   • Some employers choose to “gross up” relocation bonuses to cover taxes, so the employee nets the full intended amount. This can make the bonus more attractive but increases employer cost.
     

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Best Practices for Employers

To make relocation bonuses effective while staying compliant:

• Be Transparent: Explain upfront how the bonus will be taxed and what employees can realistically expect to receive.
• Consider Gross-Ups: If the goal is to fully cover moving costs, grossing up the bonus may be the fairest solution.
• Work With Payroll and Tax Teams: Ensure your payroll system correctly withholds and reports the bonus.
• Offer Alternatives: In some cases, providing direct payments to vendors (like moving companies or temporary housing providers) may reduce complexity for employees.
• Document Policies: Establish clear relocation policies so managers and HR teams apply benefits consistently.

Conclusion

Relocation bonuses can make the difference between landing top talent and losing them to a competitor, but they come with tax strings attached. Employers must treat these payments as taxable wages, withhold and report them correctly, and communicate openly with employees about what they’ll actually receive.

Handled well, relocation bonuses strengthen your hiring strategy and employee experience. Handled poorly, they can create confusion, compliance risks, and unexpected costs. For employers, the key is planning ahead: know the tax rules, build transparent policies, and align your payroll practices with your talent strategy. For more insights into workplace policies, employment rights, and HR best practices, explore our other blogs and check out our hr compliance webinars for expert guidance.