HR Solutions

SHRM's knowledge advisors answer common HR questions.

By Yvette Lee, SHRM-SCP & Erin Patton, SHRM-SCP Apr 1, 2015
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Are moving expenses considered taxable income?

It depends. The IRS will consider relocation reimbursements as “qualified fringe benefits” and exclude them from taxable income if the expenses paid by the employee are closely related to the time when he or she starts work at the new job location. Generally, moving expenses incurred within one year from the date the employee first reports to work at the new location qualify.

In addition, the employee must work full time for at least 39 weeks in the first year after arriving in the new location. Moreover, the new job is required to be at least 50 miles farther from the employee’s former home than the old job was from that location.

Some expenses that can be excluded from taxable income are the cost of moving the employee’s household goods and personal effects from the former home to the new residence and the cost of storing the employee’s household goods for a certain period of time.

However, not all moving expenses can be excluded from taxable income. Those include temporary living expenses, security deposits, mortgage penalties, and expenses related to buying or selling a home. A full list can be found in IRS Publication 521.

If the relocation reimbursements (partial or entire reimbursements) don’t meet the IRS criteria, you can choose another way to provide the same net benefit amount to the relocating employee. You can “gross up” the reimbursement amount—in other words, pay the tax for the employee just as some companies do for employee bonuses. The major difference is that you would need to take into account the employee’s year-end tax liability in order to truly absorb the tax liability for the employee. Before you decide to go this route, it’s a good idea to consult with a tax advisor because the calculation can be challenging.

—Yvette Lee, SHRM-SCP

Do interns count as full-time employees under the Affordable Care Act?

Yes—if they are paid for at least 30 hours of work per week. The term “intern” is often used by employers as an internal position classification. However, it does not by itself establish any formal employment relationship. In general, unpaid interns are not considered employees and thus are not subject to employment laws or counted under the Affordable Care Act (ACA). Paid interns, on the other hand, are deemed employees—which means that they enjoy all of the same employment rights as your other workers, including the right to health insurance. Check the U.S. Department of Labor website or consult with an attorney to ensure that your company has correctly classified individuals.

Under the ACA, a paid intern must be counted as an employee in determining if a company is a large employer subject to the law’s provisions on providing health care insurance. A company is considered a large employer if it has 50 or more full-time employees or full-time equivalents.

However, employers can exclude from the calculation seasonal workers who were employed for no more than 120 days during the prior calendar year and who were hired to work on a seasonal basis only. For example, if a company hires summer interns, the seasonal worker exception may apply and you don’t need to include these individuals when counting employees. In addition, you don’t have to consider the service performed by students under federal or state-sponsored work-study programs in determining whether they are full-time employees.

If your company is a large employer, you must offer health insurance to full-time employees or pay penalties. Full-time employees under the ACA are those who work 30 or more hours per week, and paid interns are no exception. In other words, use the same methods for determining the full-time status of paid interns as you do for other employees. These methods involve either looking back at employees’ hours over the previous three to 12 months or counting employees monthly.

For additional information, see IRS Notice 2012-58. You can also learn more by reading the Society for Human Resource Management’s how-to guide “How to Determine Hours Worked for Ongoing Employees Under Health Care Reform."

As a result of the ACA, you may need to adjust your use of paid interns to avoid the penalties associated with failing to offer health coverage. A simple approach would be to limit paid interns to less than 30 hours of work per week.

The ACA applies only to health insurance. Employers may continue to define interns’ eligibility for other policies and practices as they wish.

—Erin Patton, SHRM-SCP

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