Lawmakers aim to ease tax burden on new and retiring federal workers
Senators have introduced a bill that would lessen the blow of taxes on moving expenses for federal workers — a move some government employers say is necessary to attract top talent.
The Relocation Expense Parity Act, introduced Wednesday, would remedy an issue that arose after the Tax Cuts and Jobs Act of 2017 eliminated tax deductions on moving costs. Since Jan. 1, federal employees have been liable for taxes on permanent change of station expenses that can total thousands of dollars.
Since moving expenses are no longer deductible, additional money or reimbursements employers offer workers to help with moves are taxable. For federal workers, that means checks they never even see, such as those the government pays to ship and store household goods, are counted as taxable income.
The issue was resolved for many after the General Services Administration released directions in May allowing reimbursement of “substantially all” taxes for federal employees moving to another government job.
But the GSA does not have the authority to allow the reimbursements — which come in the form of Withholding Tax Allowance and Relocation Income Tax Allowance payments — to be paid to those entering or leaving federal jobs because of the way the law is written.
A statement released by the bill’s sponsors — Sens. Mark Warner, D-Va.; Tim Kaine, D-Va.; Susan Collins, R-Maine; Chris Van Hollen, D-Md.; and Mazie Hirono, D-Hawaii — referred to the issue as a “loophole.” It would make new or outgoing employees eligible for such reimbursements, by changing the word “employee” to “individual” throughout the law authorizing RITA and WTA.
“This bipartisan legislation closes a remaining gap that prevents all federal employees from being fairly compensated for their willingness to serve our country,” Warner said in a statement. “Civilian federal workers uproot their entire lives and move to distant locations in service to their country. They shouldn’t have to pay a price for their commitment to public service.”
The bill would not change the 2017 tax law’s elimination of moving-expense deductions, which is expected to raise about $1 billion per year for the national budget, according to the Joint Committee on Taxation. Rather, it would allow the federal government to reimburse its employees for tax expenses like private-sector employers can.
But the bill is not a fix-all. WTA and RITA payments are considered taxable income themselves, and the payments aren’t automatic. Employees must apply for the reimbursements in the year after a move, according to Defense Finance and Accounting Services.
Many federal employees, such as recently retired teacher Alex Veto, had operated under the assumption that they would be taken care of financially when leaving an overseas posting. After dedicating his career to educating military children, Veto was preparing for a move home from Germany where he taught at Vilseck High School at U.S. Army Garrison Bavaria when the 2017 tax law went into effect.
Suddenly, he was facing a “huge, unforeseen cost” and “severe blow to [his] financial situation for retirement,” Veto said in a statement released by the Relocation Expense Parity Act’s sponsors.
“I worked for DODEA schools for decades … with the understanding that the government would pay to move my family and our possessions back home when my DODEA career ended,” Veto said in the statement. “… To suddenly make those moving services taxable to us is unfair and hurtful!”
The retiree said in the statement he thinks that without relief, other federal employees may “delay their retirements because they cannot afford the tax bill they would incur by moving back home.”
Some in charge of hiring federal employees have said the new tax burdens have hurt their ability to competitively recruit new workers, especially to overseas locations.
H.T. Nguyen, executive director of the Federal Education Association, said it’s difficult enough attracting talent given the “enormous expenses and stresses anyone agreeing to relocate overseas for government work already faces.”
“Why would anyone agree to uproot themselves – and, in many cases, their families – in order to move halfway around the world if doing so will cause them to incur thousands of dollars in tax liability?” he said in a statement. “… the military dependents who have come to rely on such excellent educators staffing DODEA schools will [be] the ones who suffer as a result.”
Hirono said the bill would ensure moving costs don’t “impede the hiring of new federal employees.”
“At a time when Hawaii faces an overall provider shortage in our veterans’ health care system, this legislation helps to ensure that the cost of moving does not impede the important work federal employees do across the country every day,” she said in a statement.
After its introduction on the Senate floor Wednesday, the bill was referred to the Senate Committee on Homeland Security and Governmental Affairs. There, legislators will consider whether the bill needs change and if it should be presented for a vote.
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