|CHAPTER��16�-�RELOCATION�INCOME�TAX�(RIT)�ALLOWANCE
        C16003��TYPES�OF�MOVING�EXPENSES�OR�ALLOWANCES�COVERED�AND�GENERAL�LIMITATIONS
            I.��RELOCATION�SERVICES.
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| | I.� RELOCATION SERVICES.� | 
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| | Payments, or portions thereof, made to a relocation service company for services provided to covered transferred employees.� DOD components shall determine the tax consequences of their relocation services on their covered employees. | 
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| | 1.� For Employees Transferred On or After 14 November 1983 Through 11 October 1984.� The amount of a broker's fee or real estate commission or other real estate sales transaction expenses which normally are reimbursable to the employee under Chapter 14 but have been paid by a relocation service company incident to an assigned sale from the employee, provided that such payments constitute income to the employee.� For the purpose of this regulation, an assigned sale occurs when an employee obtains a binding agreement for the sale of his/her residence and assigns the inherent rights and obligations of that agreement to a relocation company that is providing services under contract with the employing DOD component.� For example, if the employee incurs an obligation to pay a specified broker's fee or real estate commission under the terms of the sales agreement, this obligation along with the same agreement is assigned to the relocation company and may, upon payment of the obligation by the relocation company, constitute income to the employee. | 
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| | 2.� For Employees Transferred On or After 12 October 1984.� Expenses paid by a relocation company providing relocation services to the transferred employee pursuant to a contract with the employing DOD component to the extent such payments constitute income to the employee. | 
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| | NOTE:� See paragraph chapter referenced in pars. A through I for reimbursement provisions for the allowance listed in those paragraphs.� See Section 217 of the Internal Revenue Code (IRC) and Internal Revenue Service (IRS) Publication 521 entitled "Moving Expenses" an appropriate State and local tax authority publications for additional information on the taxability of moving expense reimbursements and the allowable tax deductions for moving expenses. | 
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| | C16004� EXCLUSIONS FROM COVERAGE | 
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| | The provisions of this Chapter are not applicable to the following: | 
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| | 1.� any tax liability that may result from payments by the Government to relocation companies on behalf of employees transferred on or after 14 November 1983 through 11 October 1984, other than the payments for those expense specified in par.C16003-I1; | 
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| | 2.� any tax liability incurred for local income taxes other than city income tax as a result of moving expense reimbursements for employees transferred on or after 14 November 1983 through 11 October 1984.� See definition in par.C16005-B; | 
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| | 3.� any tax liability resulting from reimbursed expenses for any nontemporary storage of HHG except as specifically provided for in par.C16003-C; | 
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| | 4.� any tax liability resulting from paid or reimbursed expenses for shipment of a privately owned automobile; | 
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| | 5.� any tax liability resulting from an excess of reimbursed amounts over the actual expense paid or incurred.� For instance, if an employee's reimbursement for the movement of HHG is based on the commuted rate schedule and his/her actual moving expenses are less than the reimbursement, the tax liability resulting from the difference is not covered by the RIT allowance.� See par.C16008-C2a; | 
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| | 6.� any tax liability resulting from an employee's decision not to deduct moving expenses for which a tax deduction is allowable under the Internal Revenue Code or appropriate State and local tax codes.� See pars.C16008-B1andC16008-C2; | 
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| | 7.� any tax liability resulting from the payment of recruitment, retention, or relocation bonuses authorized by the Office of Personnel Management pursuant to 5 U.S.C. 5753 and 5754, or any other provisions which allow relocation payments that are not reimbursements for travel, transportation, and other expenses incurred in relocation. | 
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| | C16005� DEFINITIONS AND DISCUSSION OF TERMS | 
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| | For purposes of this Part, the following definitions will apply: | 
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| | A.� STATE INCOME TAX.� | 
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| | A tax, imposed by a State tax authority, that is deductible for Federal income tax purposes as a State income tax under section 164(a)(3) of the IRC.� "State" means any one of the several States of the United States and the District of Columbia. | 
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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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