|CHAPTER��16�-�RELOCATION�INCOME�TAX�(RIT)�ALLOWANCE
        C16005��DEFINITIONS�AND�DISCUSSION�OF�TERMS
            B.��LOCAL�INCOME�TAX.
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| | B.� LOCAL INCOME TAX.� | 
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| | A tax, imposed by a recognized city or county tax authority that is deductible for Federal income tax purposes as a local (city or county) income tax under section 164(a)(3) of the IRC; except that, for employees transferred on or after 14 November 1983 through 11 October 1984, local income tax shall be construed to mean only city income tax.� For purposes of this regulation: | 
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| | 1.� City.� "City" means any unit of general local government which is classified as a municipality by the Bureau of the Census, or which is a town or township that in the determination of the Secretary of the Treasury possesses powers and performs functions comparable to those associated with municipalities, is closely settled, and contains within its boundaries no incorporate places as defined by the Bureau of the Census (31 CFR 215.2(b)(1)). | 
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| | 2.� County.� "County" means any unit of local general government which is classified as a county by the Bureau of the Census (31 CFR 215.2(e)). | 
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| | C.� COVERED MOVING EXPENSE REIMBURSEMENTS OR COVERED REIMBURSEMENTS.� | 
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| | As used herein, these terms include those moving expenses listed in par. C16003 as being covered by the RIT allowance and which may be furnished in kind, or for which reimbursement or an allowance is provided by the Government. | 
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| | D.� COVERED TAXABLE REIMBURSEMENTS.� | 
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| | Covered moving expense reimbursements minus the tax deductions allowable under the IRC and IRS regulations for moving expenses.� See determination in par.C16008-C. | 
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| | E.� YEAR 1 OR REIMBURSEMENT YEAR.� | 
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| | The calendar year in which reimbursement or payment for moving expenses is made to, or for, the employee under the provisions of this Chapter.� All of part of these reimbursements (see par.C16006) are reported to the IRS as income (wages, salary or other compensation) to the employee for that tax year under the provisions of the IRC and IRS regulations, and are subject to Federal tax withholding.� The withholding tax allowance (WTA) (see subpar. N) is calculated in Year 1, to cover the employee's Federal tax withholding obligations each time covered moving expenses are made that result in a Federal tax withholding obligation.� For purposes of this regulation, an advance of funds for any of the covered moving expenses is not considered to be a reimbursement or a payment until the travel voucher settlement for such expenses takes place.� If an employee's reimbursement for moving expenses is spread over more than 1 year, he/she will have more than one Year 1. | 
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| | F.� YEAR 2.� The calendar year in which a claim for the RIT allowance is paid. | 
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| | 1.� General.� | 
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| | Generally, Year 2 will be the calendar year immediately following Year 1 in which the employee files a tax return reflecting his/her tax liability for income received in Year 1.� However, there may be instances where the employee's claims submission and/or payment of the RIT allowance is delayed beyond the calendar year immediately following Year 1.� (Year 1 will always be the calendar year that reimbursements are received; see subpar. E).� Year 2 will be the calendar year in which the RIT allowance is actually paid. | 
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| | 2.� Calculated in Year 2.� | 
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| | The RIT allowance is calculated in Year 2 and paid to cover the additional tax liability (resulting from moving expense reimbursements received in Year 1) not covered by the WTA paid in Year 1.� If an employee's covered taxable reimbursements are spread over more than one year, he/she will have more than one Year 2. | 
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| | G.� FEDERAL WITHHOLDING TAX RATE (FWTR).� | 
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| | The tax rate applied to incremental income to determine the amount to be withheld for Federal income tax from salary or other compensation such as moving expense reimbursements.� Because moving expense reimbursements constitute supplemental wages for Federal income tax purposes, the 20 percent flat rate of withholding is generally applicable to such reimbursements (see par.C16007-C).� DOD components should refer to the Treasury Fiscal Requirements Manual, ITFRM 3-5000, and applicable IRS regulations for complete and up-to-date information on this subject. | 
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| | H.� EARNED INCOME.� | 
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| | For purposes of the RIT allowance, "earned income" shall include only the gross compensation (salary, wages, or other compensation such as reimbursement for moving expenses and the related WTA (see subpar. N) and any RIT allowance (see subpar. M) paid for moving expense reimbursement in a prior year) that is reported as income on IRS Form W-2 for the employee (employee and spouse, if filing jointly), and if applicable, the net earnings (or loss) for self-employment income shown on schedule SE of IRS Form 1040.� Earned income may be from more than one source.� See par.C16008-D. | 
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| | I.� MARGINAL TAX RATE (MTR).� | 
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| | The tax rate (for example 33 percent) applicable to a specific increment of income.� The Federal, Puerto Rico,� and State marginal tax rates to be used in calculating the RIT allowance are provided in Tables beginning on page C16-19.� See par.C16008-E3for instructions on local marginal tax rate determinations. | 
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| | J.� COMBINED MARGINAL TAX RATE (CMTR).� | 
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| | A single rate determined by combining the applicable marginal tax rates for Federal, (or Puerto Rico, when applicable), State and local income taxes, using the formulas provided in par.C16008-E4. | 
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| | K.� "GROSS-UP".� | 
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| | Payment for the estimated additional income tax liability incurred by an employee as a result of reimbursements or payments by the Government for the covered moving expenses listed in par.C16003. | 
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| | L.� "GROSS-UP" FORMULAS.� | 
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| | The formulas used to determine the amount of the "gross-up" for the WTA and the RIT allowance.� The formulas used herein (see pars.C16007-DandC16008-F) compensate the employee for the initial tax, the tax on tax, etc.� Note that the WTA gross-up formula in par.C16007-Dis different than the RIT "gross-up" formula prescribed in par.C16008-F. | 
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| | M.� RIT ALLOWANCE.� | 
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| | The amount of payment computed and paid in Year 2 to cover substantially all of the estimated additional tax liability incurred as a result of the covered moving expense reimbursements received in Year 1. | 
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| | N.� WITHHOLDING TAX ALLOWANCE.� | 
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| | The WTA, paid in Year 1, covers the employee's Federal tax withholding liability on covered taxable reimbursements received in Year 1.� The amount is computed by applying the withholding "gross-up" formula prescribed in par.C16007-D(using the Federal withholding tax rate) each time that a Federal withholding obligation is incurred on covered moving expense reimbursements received in Year 1.� "Grossing-up" the Federal withholding amount protects the employee from having to use part of his/her moving expense reimbursement to pay federal withholding taxes.� See par.C16007. | 
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| | O.� STATE GROSS-UP.� | 
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| | Payment for the estimated additional State income tax liability incurred by an employee as a result of reimbursements or payments by the Government for the covered moving expenses listed in par. C16003 that are deductible for Federal income tax but not for State income tax purposes. | 
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| | P.� STATE GROSS-UP FORMULA.� | 
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| | The formula prescribed in par. C16008-F5 to be used in determining the amount to be included in the RIT allowance to compensate an employee for the additional State income tax incurred in States that don't allow the deduction of moving expenses. | 
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| | C16006� PROCEDURES IN GENERAL | 
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| | A.� GENERAL.� | 
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| | This regulation sets forth procedures for the computation and payment of the RIT allowance and defines DOD component and employee responsibilities.� This regulation doesn't require changes to those internal fiscal procedures established by individual DOD components pursuant to IRS regulations, or the Treasury Fiscal Requirements Manual, provided that the intents of the statute authorizing the RIT allowance and this regulation aren't disturbed. | 
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| | B.� INCLUSIONS IN GROSS INCOME.� | 
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| | The total amount reimbursed or paid to the employee, or on an employees behalf, for travel, transportation and other relocation expenses and allowances is includable in the employee's gross income pursuant to the Internal Revenue Code (IRC) and certain State or local� government tax codes.� Some moving expenses for which reimbursements are received may be deduced from income by the employee as moving expense deductions, subject to certain limitations prescribed by the IRS or pertinent State or local tax authorities.� Reimbursement for nondeductible moving expenses are subject to income tax.� See IRS Publication 521 entitled "Moving Expenses" and the appropriate State and local tax codes for detailed information. | 
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| | C.� TAX WITHHOLDING.� | 
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| | Usually, if the employee is reimbursed for nondeductible moving expenses, the amount of these reimbursements is subject to withholding of Federal income tax in accordance with IRS regulations at the time of reimbursement.� Under existing fiscal procedures, the amount of the employee's withholding obligation usually is deducted either from reimbursement for the moving expenses at the time of reimbursements or from the employee's salary.� See Treasury Fiscal Requirements Manual for Federal Agencies. | 
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| | D.� WTA OFFSETS DEDUCTIONS.� | 
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| | Payment of a withholding tax allowance (WTA) established herein shall offset deductions for the Federal income tax withholding, on moving expense reimbursements and on WTA itself, from the employee's moving expense reimbursements or from salary. | 
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| | E.� WHEN RIT ALLOWANCE COMPUTED.� | 
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| | The total amount of the RIT allowance can be computed after the end of Year 1 as soon as the earned income level, income tax filing status, total covered taxable reimbursements, and the applicable marginal tax rates can be determined.� Employee claims for the RIT allowance should be submitted in accordance with this regulation and the DOD components' procedures. | 
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| | F.� COMPUTING AND PAYMENT PROCEDURES.� | 
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| | Procedures are prescribed in pars.C16007andC16008for computation and payment of the WTA and the RIT allowance.� These procedures are built on existing fiscal procedures and IRS regulations regarding reporting of employee income from reimbursements and withholding of taxes on supplemental wages. | 
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| | C16007� PROCEDURES FOR DETERMINING THE WTA IN YEAR 1 | 
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| | A.� GENERAL RULES.� | 
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| | The WTA is designed to cover only the employee's withholding tax obligation for Federal income taxes on income resulting from covered moving expense reimbursements (see definition in par.C16005-C).� Other withholding tax obligations, if any, such as for Social Security taxes or for State and/or local income taxes on income resulting from moving expense reimbursements shall not be included in the calculation of the WTA payment.� The amount of the WTA is equal to the Federal income tax withholding obligation incurred by the employee on covered moving expense reimbursements (which aren't offset by deductible moving expenses) and on the WTA itself.� Each time covered moving expense reimbursements are paid to or on behalf of the employee, the WTA shall be calculated, accounted for, and reported as provided in subpars. B through F. | 
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| | B.� DETERMINATION OF AMOUNT OF REIMBURSEMENT SUBJECT TO WITHHOLDING.� | 
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| | Under IRS regulations, income resulting from reimbursements for nondeductible moving expenses is subject to withholding of Federal income taxes (see IRS Publication 521, "Moving Expenses").� There are some moving expenses which may be reimbursed but aren't covered taxable reimbursements (see definition in par.C16005-D) for the purposes of the WTA and RIT allowance calculations, such as nontemporary storage of HHG (see exclusions in par.C16004).� Therefore, the actual amount of the covered taxable reimbursements may be different than the amount of nondeductible moving expenses subject to Federal income tax withholding.� Because the difference in these amounts shouldn't be substantial, the amount of nondeductible moving expenses subject to Federal income tax withholding, as determined by the DOD component concerned pursuant to IRS regulations, may be used in calculating the WTA.� (Note:� The RIT calculation procedure in par.C16008requires determination of covered taxable reimbursements). | 
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| | C.� DETERMINATION OF FEDERAL WITHHOLDING TAX RATE (FWTR).� | 
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| | Moving expense reimbursements constitute supplemental wages for Federal income tax purposes.� Therefore, a DOD component must withhold at the withholding rate applicable to supplemental wages.� Currently, the supplemental wages withholding rate is 28 percent.� The supplemental wages withholding rate should be used in calculating the WTA unless under a DOD component's withholding procedures, a different withholding rate is used pursuant to IRS tax regulations.� In such cases, the applicable withholding rate shall be substituted for the supplemental wages withholding rate in the calculation shown in subpar. D. | 
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| | D.� CALCULATION OF WITHHOLDING TAX ALLOWANCE (WTA).� | 
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| | The WTA is calculated by substituting the amounts determined in subpars. B and C, above into the WTA "gross-up" formula shown below: | 
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| | Formula:Y =� � X��� (N) | 
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| | ������� 1-X | 
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