On March 14, 2019, U.S. Senators Warner (D-VA) and Kaine (D-VA), announced bipartisan legislation to fix a problem that is denying relocation tax assistance to certain federal employees. Senator Collins (R-ME) is a co-sponsor. The bill, which as yet is not numbered, is a reintroduction of S. 3236, which was introduced in the last Congressional session for the same reasons.
The bills seek to remedy a glitch in the law that permits the federal government to pay moving expenses for new hires and employees stationed overseas who return to the U.S. to retire, but does not permit the government to gross up for additional taxes for those employees as it does for transferees moving from one duty station to another. The problem was minimized under prior law because moving expense reimbursements and payments were excludable from the employee’s income and did not cause a tax increase. However, the Tax Cuts and Jobs Act suspended the exclusion for moving expenses through 2025, except for the uniformed military. As a result, new hires for government jobs face a substantial increase in their taxable income due to the addition of previously excludable moving expenses, but unlike other government transferees, the government is not permitted to provide tax assistance.
According to several agencies and organization that represent government employees, this problem is causing severe hiring issues, particularly for law enforcement agencies.
Related legislation was also introduced in the House last session by Congressman Denny Heck (D-WA). That bill would have restored the moving expense exclusion for any federal employees moving to or between foreign locations, including Alaska and Hawaii. The bill would have resolved the problem of gross-up for federal employees retiring from overseas, but not for new hires. It has not yet been reintroduced in the current Congressional session.
Prospects for the Kaine/Warner bill are uncertain.
The bill introduced in the Senate would resolve a significant problem in the federal government relocation program and facilitate the movement of federal employees.