Financial Planning for Relocating Employees Can Save HR from Headaches Later

Roy Maurer By Roy Maurer April 21, 2017

​Lynn Pettus, partner and national director of the employee financial services practice at EY.

As more employees are assigned to projects that take them over state lines for weeks at a time, or workers are asked to move permanently, the need for financial planning assistance to alleviate workers' stress grows too.

Employees who are moving or who are required to travel across states as part of their job requirements have to deal with many tax and financial issues.

Lynn Pettus discussed mobility trends, tax complications and solutions for transferees with SHRM Online. Pettus is a partner at consultancy EY and the national director for the firm's employee financial services practice based in Charlotte, N.C.

[SHRM members-only toolkit: Managing Employee Relocation]

SHRM Online: What types of mobility and relocation trends are you seeing that are leading to tax challenges for HR and mobile or relocating employees?

Pettus: The Global Business Travel Association estimated that U.S. workers are expected to take 488 million business trips this year. That number has skyrocketed over the last couple of years, and I don't think it will decrease in the near future.

We've seen the growth of short-term assignments, which are typically less than one year, workers' longer-term travel over a year working outside of their domiciled state, and permanent relocation. As more U.S. headquarters relocate to various states due to tax incentives those states are offering, many employees are being asked if they would permanently relocate. This obviously causes stress from an emotional and financial perspective and brings on tax challenges for both employers and employees.  

SHRM Online: Which states stand out in terms of outgoing and incoming relocations?

Pettus: There does seem to be a movement from the West Coast toward areas not only offering incentives to the business but which also have no state income tax, like Texas. Texas has seen quite an inflow of new businesses into the state.

SHRM Online: What are the most typical tax complications when relocating employees around the country?

Pettus: For short-term assignments, the main complication is multistate filings. It's not necessarily straightforward. The transferee will have to understand credits and what to do from a nonresident filing perspective. It can be complex for individuals unless they have assistance. 

Relocated employees will have at least multistate filings for that year and potentially for future years if the employee tries to maintain a home or rental property in the departure state of residency. There is a lot of confusion around residency requirements. The dilemma over selling a home—or buying a new home in the destination state or renting a new home—and the implications of that decision from a tax perspective can be stressful. Relocating employees also need information on the cost of living in the new state, including the tax situation. Texas may not have a state income tax, but you also need to look at property tax. And it's not just tax implications which are the drivers; it's the financial planning around the move and how it affects the employee's family and cash flow.

SHRM Online: What are some recommended solutions and methods for dealing with these complications?

Pettus: We recommend a holistic approach to financial planning, including looking at cash flow, debt management, education funding and housing. Have experts available, either face to face or through online or telephone assistance lines, to help individuals. Every situation is different for these employees, and it's important for them to have a resource to talk to about their specific situation. Some employers provide reimbursement for tax preparation, given the complexities involved.

It's important to remember that employees need the assistance once they decide to make the move, not the day before they move. And it should be available for some time after the move has been made. I recommend three to six months on the front end, and the same duration on the back end, even up to a year in some cases.

From an HR perspective, make sure that communications are clear and that the transferees understand that there are multiple providers available to assist—from relocation assistance services to tax preparation and financial wellness programs. Pool the partners together, so each of the providers understands what the other one does, and it's more of a seamless experience for the employee. Have a vendor summit for relocating employees instead of just handing out five different phone numbers for different services. The more HR can make the process cohesive and seamless, the easier it will be for the employee to navigate, and frankly for HR in the end.

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