|CHAPTER��16�-�RELOCATION�INCOME�TAX�(RIT)�ALLOWANCE
        C16008��RULES�AND�PROCEDURES�FOR�DETERMINING�THE�RIT�ALLOWANCE�IN�YEAR�2
            B.��GENERAL�RULES�AND�ASSUMPTIONS
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| | B.� GENERAL RULES AND ASSUMPTIONS | 
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| | 1.� Procedures.� | 
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| | The procedures prescribed herein for calculations and payment of the RIT allowance are based on certain assumptions jointly developed by GSA and IRS, and tax tables developed by IRS.� This approach avoids a potentially controversial and administratively burdensome procedure requiring the employee to furnish extensive documentation, such as certified copies of actual tax returns and reconstructed returns, in support of a claim for a RIT allowance payment.� Specifically the following assumptions have been made: | 
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| | a.� the employee will claim allowable moving expense deductions for the same tax year in which the corresponding moving expense reimbursements are included in income; | 
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| | b.� changes to the IRC, applicable to the 1987 and subsequent tax years, require that allowable moving expense deductions must be taken as an itemized deduction from gross income rather than as an adjustment to gross income as in previous years.� It is assumed that employees will receive the benefit of allowable moving expense deductions to offset income either by itemizing their moving expense deductions or through the increased standard deductions; and | 
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| | c.� prior to the tax reform act of 1986, it was assumed that the employee's (and spouse's, if a joint return is filed) earned income, filing status, and CMTR determined for Year 1 (and used in determining the RIT allowance in Year 2) would remain the same or would not be substantially different in the second and subsequent tax years.� However, the Tax Reform Act of 1986 substantially changed the Federal tax structure making it necessary to compute a separate CMTR for Year 1 and for Year 2 (see subpar. E).� The formula for calculating any RIT allowances to be paid in 1988 and subsequent years is shown in subpar. F.� It is assumed that within the accuracy of the calculation, the state and local tax rates for Year 1 and Year 2 will remain the same or will not be substantially different.� Therefore, the state and local tax rates for Year 1 shall be used in calculating the CMTR for Year 2. | 
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| | 2.� Estimate of Tax Liability.� | 
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| | The prescribed procedures which yield an estimate of an employee's additional tax liability due to moving expense reimbursements are to be used uniformly.� They are not to be adjusted to accommodate an employee's unique circumstance which may differ from the assumed circumstances stated in subpar. 1. | 
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| | 3.� Adjustment.� | 
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| | An adjustment of the RIT allowance paid in Year 2 for the covered taxable reimbursements received in Year 1 is required if the tax information certified to on the RIT allowance claim is different from that shown on the actual Federal tax return field with IRS for Year 1 or changed for any reason after filing of the tax return, so as to affect the CMTRs used in the RIT allowance calculation.� See par.C16010for claims procedures. | 
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| | C.� DETERMINATION OF AMOUNT OF COVERED TAXABLE REIMBURSEMENTS | 
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| | 1.� General.� | 
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| | Generally, the amount of the covered taxable reimbursements is the difference between (1) the amount of covered moving expense reimbursements for the allowances listed in par. C16003 that was included in the employee's income in Year 1, and (2) the maximum amount of allowable moving expenses that may be claimed as a moving expense deduction by the employee on his/her Federal tax return under IRS tax regulation to offset the income resulting from moving expense reimbursement for Year 1.� The covered taxable reimbursements will be determined as if the employee had itemized and deducted all allowable moving expense deductions (see assumption made in subpar. B1, item b).� If the employee is precluded from claiming moving expense deductions because he/she does not meet IRS requirements for the distance test, the amount of covered taxable reimbursements is the same as the amount of covered expenses.� See par.C16005-D. | 
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| | 2.� Moving Expense Deduction.� | 
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| | For purposes of calculating the RIT allowance, the following special rules apply to the determination of moving expense deductions to offset moving expense reimbursements reported as income: | 
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| | a.� En Route Travel.� The total amount of reimbursement (which was reported as income) for the expenses of en route travel for the employee and family (see par.C16003-A) and transportation (including up to 30 days temporary storage) of HHG (see par.C16003-B) to the new official station shall be due as a moving expense deduction.� See also pars. C16004, items 5 and 6. | 
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| | b.� Househunting Trip.� The total amount of reimbursement for a househunting trip, temporary quarters (up to 30 days at new station) and real estate transaction expenses (see pars.C16003-E, F, G and I), up to the maximum allowable deduction under IRS tax regulations, shall be used as a moving expense deduction.� For example, an employee and spouse filing a joint return and residing in the same household at the end of the tax year may deduct up to $3,000 for these expenses.� (No more than $1,500 of the $3,000 may be claimed for househunting trips and temporary quarters expenses combined.)� If the employee was reimbursed $1,350 for a househunting trip and temporary quarters expenses and $9,000 for real estate expenses, the moving expense deductions would be $1,350 for the househunting trip and temporary quarters expense and $1,650 for real estate expenses.� If the employee's reimbursement was $1,850 for the househunting trip and temporary quarters expenses and $9,000 for real estate expenses, the moving expense deductions would be $1,500 for the househunting trip and temporary quarters expenses and $1,500 for real estate expense.� If the employee had no reimbursement for the househunting trip and temporary quarters, the full $3,000 would be applied to the $9,000 reimbursement for real estate expenses.� See IRS Publication 521, "Moving Expenses," for these and other maximums which vary by situation and filing status. | 
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| | 3.� When Reimbursements Span More Than 1 Year. | 
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| | Procedures and examples are provided herein as if all moving expense reimbursements are received in 1 year with all moving expense deductions applied in that same year to arrive at the covered taxable reimbursements.� However, when reimbursements span more than 1 year, the amount of covered taxable reimbursements must be determined separately for each reimbursement year (Year 1).� The maximum moving expense deductions apply to the entire move.� Under IRS tax regulations, the employee has some discretion as to when he/she claims these deductions (e.g., in the year of the move when the expense was paid or in the year of reimbursement, if these actions do not occur in the same year).� However, for purposes of the RIT allowance procedures, the moving expense deductions will be applied in the year that the corresponding reimbursement is made.� For example, if an employee incurred and was reimbursed $1,000 for a househunting trip and temporary quarters in 1989 and an additional $1,000 for temporary quarters in 1990, this employee, according to his/her particular situation and tax filing status, may deduct $1,500 of these expenses in moving expense deductions.� In calculating the RIT allowance for 1989, $1,000 of the $1,500 deduction is used to offset the $1,000 reimbursement in 1989 resulting in zero covered taxable reimbursements for the househunting trip and temporary quarters for 1989.� The remaining $500 (balance of the $1,500 not used in determining covered taxable reimbursements for 1989) will be used to offset the $1,000 temporary quarters reimbursement in 1990 (second Year 1), leaving $500 of the temporary quarters reimbursement as a covered taxable reimbursement for 1990. | 
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| | 4.� WTA Excluded From Taxable Reimbursement.� | 
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| | Although the WTA amount is included in income (see par.C16007), it shall not be included in the amount of covered taxable reimbursements.� Under the procedures and formulas established herein, the proper amount of the RIT allowance is calculated using the RIT "gross-up" formula with the WTA and any prior RIT allowance payments excluded from covered taxable reimbursements. | 
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| | 5.� Reimbursements Not Covered by RIT.� | 
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| | DOD components are cautioned that there may be moving expenses reimbursed to the employee that are not covered by the RIT allowance.� See exclusions in par.C16004; also see discussion in par. C16007 regarding covered taxable reimbursements versus nondeductible expense. | 
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| | D.� DETERMINATION OF INCOME LEVEL AND FILING STATUS.� | 
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| | In order to determine the CMTRs needed to calculate the RIT allowance, the employee must determine the appropriate amount of earned income (as prescribed herein) that was or will be reported on his/her Federal tax return for the tax year in which the covered taxable reimbursements were received (Year 1).� Such amount will also include the spouse's earned income if a joint filing status is claimed.� For purposes of this regulation, appropriate earned income shall include only the amount of gross compensation reported on IRS Form(s) W-2, and, if applicable, the net earnings (or loss) from self-employment income as shown in Schedule SE of IRS Form 1040 (see par.C16005-H).� (Note that moving expense reimbursements including the WTA amounts and any RIT allowance paid for a prior Year 1 are to be included in earned income and should be shown as income on the Form W-2; if they are not, other appropriate documentation shall be furnished by the DOD component.� See par.C16007-G.)� The amount of earned income as determined under this paragraph and the tax filing status (for example from lines 1 through 5 on the 1987 IRS Form 1040) shall be contained in a certified statement on, or attached to, the voucher claiming the RIT allowance.� See par.C16010.� If a joint filing status is claimed and the spouse's earned income is included, the spouse must sign the certified statement.� If the spouse does not sign the statement, earned income will include only the employee's earned income and the RIT allowance will be calculated on that basis.� This condition will not apply if an employee is allowed, under IRS rules, to file a joint return as a surviving spouse. | 
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| | E.� DETERMINATION OF THE COMBINED MARGINAL TAX RATES (CMTRs).� | 
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| | The "gross up" formula used to calculate the RIT allowance in subpar. F requires the use of two CMTRs -- one for Year 1 in which reimbursements were received and the other for Year 2 in which the RIT allowance is paid.� CMTRs are single tax rates calculated to represent the Federal, state and/or local income tax rates applicable to the earned income determined in subpar. D for Year 1.� The CMTRs will be determined as provided in subpars. 2 through 4. | 
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| | 1.� Federal Marginal Tax Rates.� | 
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| | The Federal Marginal tax rates for Year 1 and 2 are determined by using the income level and filing status determined under par.C16008-Dand contained in the certified statement by the employee (or employee and spouse) on the RIT allowance claim, and applying the prescribed Federal tax tables contained in the tables on pages C16-19 and 16-22.� For example, if the income level for 1989 tax year (Year 1) was $84,000 for a married employee filing a Federal joint return, the Federal marginal tax rate would be 33 percent for Year 1 (1989) (see page C16-19) and 28 percent for Year 2 (1990) (see page C16-20).� These rates would be used regardless of how much of the $84,000 was attributable to reimbursement for the employee's relocation expense.� (Note that these marginal rates are different from the withholding tax rate used for the WTA.)� If the employee incurs only Federal income tax (i.e., there are no State or local taxes), the Federal marginal tax rate determined from the tables on pages C16-19 and C16-22 are the CMTRs to be used in the RIT "gross-up" formula provided in subpar. F.� In such cases, the provisions of subpars. 2 and 3 do not apply. | 
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| | 2.� State Marginal Tax Rate | 
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| | a.� Determining Applicable State Marginal Tax Rate.� | 
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| | If the employee incurs an additional State income tax (see definition in par.C16005-A) liability as a result of moving expense reimbursements, the appropriate State tax table on page C16-20 is to be used to determine the applicable State marginal tax rate that will be substituted into the formula for determining the CMTR for both Year 1 and 2.� The appropriate state tax table will be the one that corresponds to the tax year in which the reimbursements are paid to the employee (Year 1).� The income level determined in subpar. D for Federal taxes shall be used to identify the appropriate income bracket in the State tax table.� The applicable State marginal tax rate is obtained from the selected income bracket column for the State where the employee is required to pay State income tax on moving expense reimbursements.� The tax rates shown in the table apply to all employees regardless of their filing status, except where a separate rate is shown for a single filing status. | 
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| | b.� Earned Income Less Than Lowest Income Bracket.� | 
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| | The lowest income bracket shown in the State tax table on page C16-20 is $20,000-$24,999.� In cases where the employee's (employee's and spouse's, if filing jointly) earned income as determined under subpar. D is less than this income bracket, an appropriate State marginal tax rate shall be established by the finance and accounting/disbursing officer from the applicable State tax code or regulations issued pursuant thereto.� Such State marginal tax rate shall be representative of the earned income level in question but in no case more than the marginal tax rate established in the table on page C16-20 for the $20,000-$24,999 income bracket for the particular State in which an additional income tax obligation has been incurred. | 
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| | c.� Converting State Marginal Tax Rate.� | 
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| | The prescribed State marginal tax rates generally are expressed as a percent of taxable income.� However, if the applicable State marginal tax rate is stated as a percentage of the Federal income tax liability, the State tax rate must be converted to a percent of taxable income to be used in the CMTR formulas in subpar. 5.� This is accomplished by multiplying the applicable Federal tax rate for Year 1 by the applicable Sate tax rate.� For example, if the Federal tax rate is 33 percent of Year 1 and the State tax rate is 25 percent of the Federal income tax liability, the State tax rate stated as a percent of taxable income would be 8.25 percent.� The State tax rate thus determined for Year 1 will be used in determining the CMTR for both Year 1 and Year 2. | 
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| | d.� Tax Liability in More Than One State.� | 
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| | An employee may incur a State income tax liability on moving expense reimbursements in more than one State at the same or different marginal tax rates (i.e., double taxation).� For example, an employee may incur taxes on moving expense reimbursements in one State because of residency in that State, and in another State because that particular State taxes income earned within its jurisdiction irrespective of whether the employee is a resident.� In such cases, a single State marginal tax rate must be determined for use in the CMTR formulas in subpar. 5.� The following general rules shall apply in determining the applicable single State marginal tax rate in such cases. | 
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| | (1)� Tax Obligation - No Two or More States Tax the Same Portion of Reimbursement.� If two or more States impose an income tax on an employee's moving expense reimbursement, but no two States tax the same portion of the reimbursement, then the reimbursement is not subject to double taxation.� In this situation, the average of the applicable State marginal tax rates as determined under subpars. a through c, shall be treated as being imposed on the entire reimbursement, and shall be used in the CMTR formulas. | 
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| | (2)� Tax Obligation - Two or More States Tax the Same Portion of Reimbursement.� If two or more States impose an income tax on the moving expense reimbursement, and more than one State taxes the same portion of the reimbursement, but those States allow an adjustment or credit for income taxes paid to the other State(s), then the reimbursement is not subject to double taxation.� In this situation, the highest of the applicable State marginal tax rates, as determined under subpars. a through c, shall be used in the CMTR formula. | 
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| | (3)� Double Taxation.� If two or more States impose an income tax on the moving expense reimbursement, and more than one State taxes the same portion of the reimbursement without allowing an adjustment or credit for income taxes paid to the other, then the reimbursement is subject to double taxation.� In this situation, the sum of the applicable State marginal tax rates, as determined under subpars. a through c shall be used in CMTR formulas. | 
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| | 3.� Local Marginal Tax Rate.� | 
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| | Because of the impracticality of establishing a single marginal tax rate table for local income taxes that could be applied uniformly on a nationwide basis, appropriate local marginal tax rates shall be determined as provided in subpars. (a) through (c). | 
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| | a.� Determining Local Rate.� | 
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| | If the employee incurs an additional local income tax (see definition par.C16005-B) liability as a result of moving expense reimbursements, he/she shall certify to such fact when claiming the RIT allowance (see certification statement in par.C16010) by specifying the name of the locality imposing the income tax and the applicable marginal tax rate determined from the actual marginal tax rate table or schedule prescribed by the taxing locality.� The marginal tax rate shall be the one applicable to the taxable income portion of the amount of earned income determined under par. D for the employee (and spouse, if filing jointly).� The same tax rate shall be used in calculating the CMTR for both Year 1 and Year 2.� The finance and accounting/disbursing officer shall establish procedures to determine whether the employee certified local marginal tax rate is appropriate for the employee's income level and filing status and approve its use in the CMTR formulas.� See also par.C16010-B2. | 
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| | b.� Converting Local Marginal Tax Rate.� | 
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| | If the local marginal tax rate is stated as a percentage of Federal or State income tax liability, such rate must be converted to a percent to taxable income for use in the CMTR formulas.� This is accomplished by multiplying the applicable Federal or State tax rate for Year 1 as determined in subpar. 1 or 2 or by the applicable local tax rate.� For example, if the State tax rate of Year 1 is 6 percent and the local tax rate is 50 percent of State income tax liability, the local tax rate stated as a percentage of taxable income would be 3 percent.� The local tax rate thus determined for Year 1 will be used in determining the CMTR for both Year 1 and Year 2. | 
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| | c.� More Than One Local Tax Liability.� | 
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| | The situations described in subpar. 2d with respect to State income taxes may also be encountered with local income taxes.� If such situations do occur, the rules prescribed for determining the single State marginal tax rate shall also be applied to determine the single local marginal tax rate for use in the CMTR formulas. | 
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| | 4.� Marginal Tax Rates for the Commonwealths of Puerto Rico, and the Northern Mariana Islands and the U.S. Possessions | 
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| | a.� The Commonwealth of Puerto Rico.� | 
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| | A Federal employee who is relocated to or from a point, or between points, in the Commonwealth of Puerto may be subject to income tax on the employee's salary (including moving expense reimbursements) by both the U.S. Government and the government of Puerto Rico.� However, under the current law of Puerto Rico, such employee receives a credit on his/her Puerto Rico income tax for the amount of taxes paid to the United States.� The rules in subpars. 1 through 3 apply in determining the marginal tax rate applicable for transfers to, from, or between points in Puerto Rico. | 
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| | (1)� The applicable Puerto Rico marginal tax rate shall be determined by using the income level determined in subpar. D for Federal taxes and the employee's filing status.� The Puerto Rico marginal tax rate for Year 1 will be used in computing the CMTR for both Year 1 and Year 2.� See the Puerto Rico tax tables at the end of this Chapter. | 
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| | (2)� If the applicable Puerto Rico marginal tax rate is higher than the applicable Federal marginal tax rate, then the total amount of taxes paid by the employee to both jurisdictions is equal to the employee's total income tax liability to the Commonwealth of Puerto Rico before any credit is given for taxes paid to the United States.� The Federal marginal tax rate, therefore, is of no consequence and will be disregarded.� In such cases, the formula in subpar. 5c will be used to compute the CMTR.� The CMTR formula shall include only the Puerto Rico marginal tax rate, the State marginal tax rate as determined under subpar. 2 (when applicable), and the local marginal tax rate as determined under subpar. 3.� For purposes of applying the Puerto Rico CMTR formula in subpar. 5c, the State marginal tax rate will be applicable if both Puerto Rico and one or more of the States impose an income tax on the moving expense reimbursement, and more than one of these entities taxes the same portion of the reimbursement without allowing an adjustment or credit for income taxes paid to the other.� In this situation, the S component of the CMTR formula will be the applicable State marginal tax rate as determined under subpar. 2. | 
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| | (3)� If the applicable Puerto Rico marginal tax rate is equal to or lower than the applicable Federal marginal tax rate, then the total amount of taxes paid by the employee to both jurisdictions is equal to the employee's total Federal income tax liability.� The Puerto Rico marginal tax rate, therefore, is of no consequence in such cases and will be disregarded.� The CMTR will be computed using the formula in subpars. 5a and b.� This formula will include the Federal marginal tax rate as determined under subpar. 1, the State marginal tax rate as determined under subpar. 2 (when applicable), and the local marginal tax rate as determined under subpar. 3.� The State marginal tax rate will be applicable if one or more States impose tax on the moving expense reimbursement. | 
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| | b.� The Commonwealth of the Northern Mariana Islands and the U.S. Possessions.� | 
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| | A Federal employee who is relocated to or from a point, or between points, in the Commonwealth of the Northern Mariana Islands or the U.S. possessions (Guam, American Samoa, and the U.S. Virgin Islands) is subject to both Federal income tax and income tax assessed by the Commonwealth of the Northern Mariana Islands or the U.S. possession, as applicable.� However, the income tax system and rates for the Commonwealth of the Northern Mariana Islands and for U.S. possessions are identical to the U.S. Federal income tax system and rates.� This constitutes a "mirror tax" system.� A tax credit or exclusion is provided by one of the taxing jurisdictions (either the U.S., and Commonwealth of the Northern Mariana Islands, or the U.S. possession, as appropriate) to prevent double taxation.� The marginal tax rate for the Commonwealth of the Northern Mariana Islands or the U.S. possession, therefore, is of no consequence since it is identical to the Federal marginal income tax rate and is completely offset by a corresponding credit or exclusion.� Thus, the Commonwealth's or the possession's tax rate will not be factored into the CMTR formula.� The CMTR will be computed as provided in subpars. 5a and b based solely on the Federal marginal tax rate; when applicable, the State(s) marginal tax rate; and the local marginal tax rate. | 
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| | 5.� Calculation of the Combined Marginal Tax Rates (CMTR).� | 
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| | As stated above, the "gross-up" formula for calculating the RIT allowance requires the use of two CMTRs.� However, the required CMTRs cannot be calculated by merely adding the Federal, State and local marginal tax rates together because of the deductibility of State and local income taxes from income for Federal income tax purposes.� The State tax tables prescribed in the table on C16-20 are designed to use the same income amount as that determined for the Federal taxes, which reflects, among other things, State and local tax deductions.� The formulas prescribed below for calculating the CMTRs are designed to adjust the State and local tax rates to compensate for their deductibility from income for Federal tax purposes. | 
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| | a.� Calculation of the CMTR for Year 1.� | 
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