Grossed up Relocation assistance

[Crandalld]

Prior to issuing my W2, my employer did an assessment and identified the portion of temporary Social Security tax assistance that was provided for relocation expenses during the year that either: (1) Caused me to meet the Social Security limit earlier in the year than if I had not relocated; or (2) Caused me to meet the maximum Social Security tax obligation during the year, although I typically do not. As a result of these findings, my  federal tax withholding was reduced by $3,255.67 before finalizing my W-2.  Why would this have not also reduced a portion of my taxable income?  I don't understand why Social Security tax would affect my Federal withholding so drastically.  Please help, I can't get a straight answer from my employer, and I am worried that this was calculated incorrectly.

[tagteam]

I'll page @AmeliesUncle for this one. Perhaps he can help. Please check back.

[AmeliesUncle]

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@Crandalld wrote:

 As a result of these findings, my  federal tax withholding was reduced by $3,255.67

Why would this have not also reduced a portion of my taxable income?  

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Could you clarify what exactly was reduced?  Are you referring to the amount of Social Security tax withholding (Box 4 of your W-2)?  Or are you referring to regular federal income tax withholding (Box 2 of your W-2)?

Box 4 of your W-4 makes sense if you hit the Social Security maximum.  It is limited to a certain amount so if they had originally had it set up as paying too much, they would need to correct it.

Relocation assistance is still subject to taxes, and due to a law change from a few years ago reimbursement for moving expenses is taxable as well.  It is just like receiving a bonus, subject to all of the usual taxes.

Does that answer your questions?  If you have further questions, maybe you can clarify and expend the details about what exactly was reduced.

[Crandalld]

The only figure that was reduced was Box 2 Federal Income Tax withheld.  They said that it was due to Social Security withholding income limits.  It doesn't make any sense to my why this would affect the Federal withholding amount, and I can't get my employer to give me a detailed accounting of the calculations.  So I am having a hard time just accepting that their calculations and figures are correct.  My W2 doesn't match my last check stub, the adjustment was made sometime after my last check and when the W-2 was issued with no notifications sent to me.

[AmeliesUncle · Accepted solution]

I agree that based on what you have said, it doesn't make sense.

If anything, they should have INCREASED the amount (they paid you for Social Security in Box 4 of the W-2, but then when they realized that wasn't necessary, they reallocated that payment to federal income tax withholding in Box 2 of the W-2).

Any chance you are mistaken about the maxxing out Social Security and have it reversed?  I could maybe see if they THOUGHT you were maxxing it out (and therefore they did not reimburse you for it), but then it turned out you are NOT maxxing it out (so they needed to pay Social Security so took it from your federal income tax withholding), it would make sense.  But based on what you said, it seems like your employer messed something up.

It sounds like you may need to schedule an appointment with the payroll person at your job.

[Opus 17]

Since the tax reform act of 2017, relocation assistance must be treated as part of your gross income, and is subject to federal and state income tax withholding as well as social security and Medicare tax withholding.  The company can't reimburse you tax-free, and if they pay the movers directly, that also has to be included in your gross wages subject to tax.

Without seeing the actual numbers it's hard to know what they did.

Regardless, box 2, 4, 6, and 17 should show the actual tax withheld and credited to your account, regardless of how is was calculated.  If you owe tax because less was withheld, then you owe tax.  If the withheld taxes don't match your actual paychecks, then the company either needs to refund you the difference (if they took money from your check and did not credit it to your account at the IRS) or the company needs to issue a corrected W-2.