Scenario: My company paid total $15000 for my relocation which is grossed up. Part of it was paid to me and remaining was paid to relocation company. The total is included in my W-2, Section 1. How do I avoid not getting taxed again?

[Mike9241]

taxed again on what? the payment to you and the relocation company will be grossed up and included in box 1 of your W-2. That should be the end of any tax issues regarding your relocation unless you violate your contract or leave before the required period of employment is completed.  

[ishan1105]

I meant tax again on the grossed up amount while filing taxes. The grossed up amount was added to my total wages in my W2 in box 1. I should be taxed on my gross income and not on grossed up amount for which company has already paid taxes. 

[Opus 17]

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@ishan1105 wrote:

I meant tax again on the grossed up amount while filing taxes. The grossed up amount was added to my total wages in my W2 in box 1. I should be taxed on my gross income and not on grossed up amount for which company has already paid taxes. 

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I think you misunderstand.  Business are not allowed to give tax-free relocation assistance.  Anything they give you (or pay on your behalf) must be included in your W-2 taxable wages.  If there was tax withheld, that will be included in the box 2 and box 17 federal and state withholding, and you get credit for it on your tax return (it adds to your refund or reduces what you owe).

For example, suppose the plan was to give you a $15,000 bonus.  That's taxable income to you, so you would net about $10,000 after taxes.  If they really want to give you $15,000 for you to put in your pocket, they have to "gross up" the amount to approximately $21,000 or so, depending on your state and how they estimate your income tax.  The entire $21,000 is considered taxable income to you.  It is subject to withholding income tax and social security and medicare tax.  The entire amount is included with your regular wages on your W-2 and you get credit for the withholding shown on your W-2.  It is not taxed twice.  The withholding is an estimate but your taxes are only really calculated on your tax return. 

[dmertz · Accepted solution]

A gross-up is additional wages paid to you to compensate you for the tax you will pay on the extra income.  It is taxable income to you the same wages paid to you for any other reason.

[Hal_Al]

Q.  How do I avoid not getting taxed again?

A. It only appears like you are being taxed again. As others have explained, your company has already paid the tax for you.  All you're doing is reporting an accounting for that. What they paid is included in the withholding shown in box 2 of your W-2.