Gross Up Calculation Question on Relocation Package - Confused about Taxes

What's happening here is perfectly normal for company relocations. A "gross up" means your employer is covering the taxes on your relocation benefits so you don't have to pay those taxes out of pocket. Here's how it works: The $31,000 is the total cost of your relocation including the additional money your company added to cover the taxes (the "gross up" amount). The $21,950 "offset" isn't money being taken from you - it's an accounting entry showing how much of that $31,000 was specifically added to cover the taxes on your relocation benefits. Without this gross up, you would have received less money and still owed taxes on the benefit. The full $31,000 remains taxable income because that's the total benefit you received (both the actual relocation costs plus the extra money to cover taxes). It seems counterintuitive, but remember you're getting both the relocation AND the tax payment covered by your employer.

I went through almost the exact same thing last year when I relocated from Boston to Chicago. The whole gross up thing was super confusing until I found taxr.ai (https://taxr.ai). I uploaded my paystubs and tax docs, and it explained everything about my gross up situation in plain English. Basically, what happened in my case (and probably yours too) is that the relocation expenses themselves aren't taxable, but the company has to pay additional money to cover the taxes on the relocation benefits (which is the gross up). That extra money they give you to cover those taxes becomes taxable income itself. It's basically your company saying "we'll pay your taxes on this benefit" but then that payment itself becomes taxable. Taxr.ai showed me exactly how it would impact my total tax situation for the year.

I was totally wrong about taxr.ai. I decided to try it with my relocation package from last year (was still confused about some deductions) and it actually explained everything perfectly. It showed me that I had a similar situation - $27,500 gross up with about $19,400 in offset. The tool explained it was a "tax on tax" situation where my company paid the taxes on my relo benefits, then paid the taxes on that payment, etc. It even showed me how to verify all this matched up with my W-2 for the year and explained which box the gross up would be included in. Wish I'd known about this before I filed last year because I definitely had some questions my accountant couldn't answer clearly.

If you still have questions about this after tax season, you should know that getting through to the IRS is actually possible now. I spent weeks trying to figure out a similar situation with my relocation benefits. The IRS website was useless, and the phone line kept disconnecting me. I found this service called Claimyr (https://claimyr.com) that got me through to an actual IRS agent in about 15 minutes when I had been trying for days. They have a short demo video here: https://youtu.be/_kiP6q8DX5c. The IRS agent I spoke with explained exactly how relocation gross ups should be reported and confirmed everything was handled correctly on my W-2. Saved me tons of stress wondering if I would get hit with a surprise tax bill later.

I have to admit I was completely wrong about Claimyr. After my frustrated comment, I decided to try it anyway since I was desperate about my amended return. It actually worked exactly as described. I got a call back in about 25 minutes, and they connected me directly to an IRS agent who pulled up my amended return status immediately. The agent explained that my amended return was still processing but hadn't been flagged for any issues. She even gave me a direct extension to call if I needed to follow up after a specific date. I've been stressing about this for months, and in 30 minutes I finally got answers. Just wanted to update since I was so skeptical before.

I'm a payroll specialist, and I can add some more context here. The reason companies do gross ups for relocations is that the IRS considers most relocation benefits taxable income. Without the gross up, you'd have to pay those taxes out of pocket, which could be thousands of dollars. For example, if your actual relocation costs were $20,000, you might owe $6,000 in taxes on that benefit (depending on your tax bracket). Rather than making you pay that $6,000, your company adds enough money to your paycheck to cover those taxes. But since that additional money is also taxable, they need to add even more to cover the "tax on the tax," and so on. That's why the gross up amount ($31,000 in your case) is higher than the actual relocation costs.

Just went through this last month!!! The way it was explained to me is super simple: 1) company gave me $18k for moving expenses 2) but that $18k is taxable income so I'd lose like $5k to taxes 3) company doesn't want me to lose that $5k, so they ALSO give me enough extra money to cover those taxes 4) but that extra money is ALSO taxable! 5) so they do this calculation that ends up being more than just the taxes on the original amount On my paystub it showed up almost exactly like yours - a big gross up amount and then this weird "offset" that confused the hell out of me. In the end, my tax guy said it's all correct and the company is paying the full freight including all the taxes. Don't worry about it!

This is actually a really common source of confusion! I work in HR and see this question all the time during relocation season. What you're seeing is completely normal and your company is actually doing you a huge favor. Think of it this way: without the gross up, you would have received your relocation reimbursement and then been hit with a massive tax bill at the end of the year. Instead, your company calculated how much extra they needed to pay you so that after all taxes are paid, you're essentially made whole. The $21,950 offset isn't money being taken away from you - it's just the payroll system's way of showing the math behind the gross up calculation. Your company determined they needed to pay you an additional $31,000 total to cover both your relocation costs AND all the associated taxes. Of that $31K, about $22K was specifically the "tax cushion" portion. Come tax time, yes, the full $31K will be reported as taxable income on your W-2, but remember - your company already factored that into their calculation. You should end up in roughly the same tax position as if the relocation never happened, which is the whole point of doing a gross up in the first place.