Civilian PCS moves now considered taxable income after law change
By CAITLIN DOORNBOS | STARS AND STRIPES Published: May 4, 2018
Some civilian federal employees are facing hefty tax burdens after a revision included in the new tax-reform law removed exemptions on moving expenses, officials say.
The change, which went into effect Jan. 1 as part of the Tax Cuts and Jobs Act of 2017, essentially redefined employer-paid and reimbursed moving expenses as taxable income — except in the cases of active-duty servicemembers.
But for civilians moving on military orders, much of the thousands of dollars the government pays for their permanent change of station moves is now considered taxable income.
The government typically pays for employee moving expenses, such as lodging and travel, to the new location and shipment and storage of household goods.
For an approximate idea of the costs, a 2015 Government Accountability Office report studying active-duty moves estimated the average price of overseas PCS moves was more than $13,000, while stateside moves averaged at about $10,000. The study did not report costs for civilian moves.
Approximately 25,000 civilian federal workers — from military civilian employees to law enforcement and veterinarians — move each year.
Last month, nine federal employee associations submitted a letter to the U.S. General Services Administration seeking relief from the code.
The letter said many federal employees are already being issued “exorbitantly large bills for taxes owed” because of the change, noting that some “are so large as to essentially negate the total value of one or multiple employee paychecks.”
The federal employee associations that drafted the letter argued the tax change is disproportionately impacting federal employees who work in national and homeland security due to the often-nomadic nature of their jobs.
Bill Valdez, president of the Senior Executive Association — one of the nine groups that submitted the letter — said “it is sadly ironic” that federal employees hurt by the tax code include those “who have already sacrificially uprooted their entire lives and relocated in the name of public service.”
The GSA is still working with the Department of Treasury and Internal Revenue Service on the best way to implement taxation on moving expenses, but some federal agencies have already begun to take the taxes out of employees’ checks absent official guidance, according to the letter.
The issue caught the attention of Sens. Mark Warner and Tim Kaine, both Democrats from Virginia, who sent a letter April 24 to the GSA asking the agency’s administrator to “rectify this situation immediately.”
Warner and Kaine said the taxes are “causing a particular burden” for federal workers who “have unexpectedly had hundreds or thousands of dollars taken out of their pay to cover additional tax withhold on costs related to a duty station change.”
“All federal workers are doing a great service to the nation, keeping the public safe and helping the government operate,” the lawmakers said in the letter. “The federal workers financially affected by this problem are uprooting their lives in order to go where the public needs them most. It is unfortunate that the response to the willingness to relocate for the public good is to then send them a bill.”
The senators urged the GSA to “move quickly and use maximum discretion to avoid having more federal employees stuck with the bill for their moves.” They also requested further information about the number of employees affected and how they are being impacted.
In a statement after learning of the senators’ letter, Valdez said his organization will continue to track the progress of the issue and work with those in the administration and Congress “to ensure the necessary policy adjustments are in place to make right damage already caused and to mitigate future damage caused by this ill-conceived policy.”
“We appreciate the leadership of Senators Warner and Kaine in ensuring this error — which has the potential to cause considerable personal damage to thousands of federal employees — is swiftly remedied,” Valdez said.
Tax attorney Steven Rosenthal, a senior fellow for the Urban-Brookings Tax Policy Center, said the new tax has some benefit. The taxation of civilian moving expenses — for both federal and nonfederal employees — is expected to raise about $1 billion per year, according to the Joint Committee on Taxation.
“On the pro side, Congress used the revenue to lower the cost of the new tax law, which was very expensive, losing more than $1.5 trillion,” he said. “However, while Congress saved a sizable amount of revenue, a lot of employees will, potentially, lose.”
For Ilene Guinn, the news of the change was an unwelcome surprise. Though the new tax code went into effect Jan. 1, she said human resources professionals sent an email last week informing her and other civilians at U.S. Naval Hospital Yokosuka about how they’d be affected.
“I was upset because if this is the case it will definitely affect me,” she said. “I don’t want to deplete my savings.”
Guinn, an early childhood special educator with the hospital’s educational and development intervention services, could be moving soon. She’s registered with the Defense Department’s Priority Placement Program, which reassigns civilian employees to new positions around the world based on DOD’s needs.
Guinn said paying taxes on a possible upcoming move could significantly hurt her family financially.
“It just seems weird how all of the sudden it can affect me when it wasn’t the case when I moved from the U.S.,” she said. “Now that I’m [in Japan], what am I going to do?”
Guinn’s co-worker Ashley Simpson — also an early childhood special educator — said she worries the taxes will make it difficult to recruit civilian employees, especially overseas.
“Many of us came to Japan and to other overseas locations because we were lucky enough to have our move covered by the government,” Simpson said. “I am pretty sure if it wasn’t covered there would be a significant problem with job coverage overseas.”
Guinn said people considering federal civilian job offers should think about the tax code change before accepting their positions.
“I would have talked to an accountant. I would have done homework to see how that would affect me before I made a decision,” she said. “Now it doesn’t matter because it’s out of my hands.”
Rosenthal suggested moving civilian employees could ask for more money from their employers to make up the difference.
“I think an employee will be less willing to move to a new posting, if the employee will bear a larger share of the moving expenses, on an after-tax basis,” he said. “Perhaps the employee could negotiate a bigger, taxable bonus to compensate for the move.”
For now, the tax will remain on the books — at least until 2026, when the disallowance of moving tax exemptions expires, Rosenthal said.