Conference 7.286::digital

The "tax adder" is supposed to help defray the additional tax burden created
by all the other things DEC pays for that the IRS considers income.

There is no claim that it completely covers your additional tax liability.
It appears to be calculated to cover the full additional tax liability of
a person with a single income consisting of *only* what the current DEC
salary is.

And maybe that's the only fair thing, anyway.  After all, why should DEC pay
two employees, both at the same DEC compensation level, both relocated at
the same cost, different amounts?  Why should DEC pay A more than B, simply
because A happened to sell some stock last year and B didn't?

/john

    I suggest you review the payments DEC made to you.  The income you
    recieve as a result of your relocation is not sheltered, but you should
    have recieved a payment to defer the federal income tax on the
    relocation income.  That is, you will pay more taxes this year, but DEC
    should give you a payment to offset those additional taxes.  In fact,
    the payment should also include enough to pay the taxes on
    itself... 

    If you can't clearly identify that payment to you I suggest that you
    work through your manager and personnel to understand exactly what is
    going on.  If I'm way off base, please let me know.  In fact, adding a
    resolution note would probably be very helpful to others in the same
    situation. 
    
    

    I remember checking into this about eight years ago. Prior to that
    time, the tax adder was a flat 30% (i.e., assumed you were in a
    30% tax bracket, so added enough that 30% tax would net to the
    relocation costs). In the late '70s the tax adder calculation was
    changed to take into account your gross taxable wages for the year.
    This is a distinct advantage, although with the new tax bill it
    will set things back about the same as we started.
    
    I suggested that there were parts of an individual's income that
    DEC knew precisely beyond wages. For example, employee stock purchase
    plan, stock options, and your spouse's wages if s/he works at DEC.
    I was informed that that had been discussed, but it was not
    implemented. 
    
    In addition, there are other sources of income that you might have.
    These might include capital gains, rents and royalties, home business,
    spouse income not from DEC, .. None of these are covered either.
    
    Hope this helps. It is unlikely that DEC would change the policy
    because the new tax law makes the tax brackets (almost) flat so
    the inaccuracies of the current policy will mostly disappear in
    another year or two. In any case, 1986 is cast in concrete.

    DEC figures the tax adder based on:

       		1) YOUR salary.
    		2) your filing (i.e., marital) status
    		3) the assumption that your spouse DOES NOT work.

    If your spouse works, the tax adder will not be enough to cover
    the additional tax burden caused by your family being in a higher
    tax bracket than it would be if you were the sole breadwinner.
    
    DEC's rationale is that it should not be responsible for covering the
    additional tax burden caused by a spouse working for another firm.  The
    flaw in this argument is obvious: It's the relocation expenses, and not
    the spouse's income, that's causing the "additional" tax burden. 
                   
    ***NOTE**** You can get relief *if your spouse works for DEC*. DEC's
    argument for not considering a spouse's salary goes out the window if
    the spouse also works for DEC.  You can contact the corporate tax
    department (or, call one of the numbers listed at the bottom of the
    1986 moving expense form that DEC sent you in the mail), explain the
    situation to them, and ask them to figure out how much tax adder is
    needed to cover your DEC-spouse's income as well. They grind through
    some equations and send you a memo which you then take to your manager
    and ask for a "relocation exception". I have personal experience with
    this; although it is strictly between you and your manager, I bet just
    about any manager would sign it once you explain the situation to them. 
    
    Good Luck.

    re .2:
    
    The tax adder is handled as follows:
    
    At the end of the calendar year, payroll calculates your gross taxable
    wages (shown on your final paycheck). Based on this, they figure your
    marginal tax bracket for that level of income. They determine an amount
    such that if that is added to both income and withholding, your
    wages plus taxable benefits work out the same. This amount is not
    shown on your final paycheck. But both adjusted gross income and
    withholding are incremented by the adder for your W-2. Obviously,
    DEC sends the equivalent information to the IRS and also pays this
    incremental withholding for you. Thus, your takehome pay does not
    change.
    
    The formula would be, roughly:
    
    	(G + B + A) * T = G * T + A
    					where	G = gross taxable wages
    						B = taxable benefits
    						A = tax adder
    						T = tax bracket
    
    this formula is inaccurate because of standard deductions and the
    variable tax brackets. But it shows the basic idea, and is correct
    at the margin if you don't cross brackets with the adder.
    
    Solving for A:
    
    		 B * T
    	A  =   ---------
    		(1 - T)
    
    Thus, for example, if your last paycheck of the year (issue date
    12-31-86) listed an adj. gross earnings of $40,000 this would have
    placed you in the 33% tax bracket for this purpose. I don't know what
    the withholding would have been, but say it was $8000. Suppose you had
    $5,000 in taxable relocation expenses reimbursed by Digital in 1986.
    This would result in a tax adder of $2462.67. Suppose you also
    participated in the Employee Stock Option plan and sold stock resulting
    in taxable compensation of $600. You would have received a letter in
    January explaining the stock transactions and stating that this $600
    was added to your W-2.
    
    Based on this example, Digital would send you a W-2 stating that
    your "Wages, tips, other compensation" was $48,062.67 and your "Federal
    income tax withheld" was $10,462.67. 
    
    	** DISCLAIMER **  I make no pretense to have included all effects,
	****************    nor to have done the calculations correctly.

    
    Regarding the $2,000 tax liability... if your move was over 60 miles,
    you did or could have received a $2,000 "miscellaneous" relocation
    payment.  Also, if you sold a home through Home Equity there is
    the $1,000 incentive for going with them... 
    
    I wouldn't look at just one line item of the relo to see if the
    package is just, but the whole thing...
    
    Marge
    

    Thanks for the advice, but I think I'm still confused.  Is the tax
    adder calculation not designed to take an *eight-month* relocation
    into account, which is clearly longer than what might be considered
    as "normal"?  In response to some of the other issues raised, we
    are about as vanilla as they come; ie:
    
    * renting a house where we moved FROM, as well as renting here in
    Nashua.  (Therefore, there was only a $1K "misc payment" instead
    of $2K.  The $2K mentioned in .6 is if you're buying a home at the
    new location).
    
    *  The move distance as shown on the relocation statement is 2000
    miles.  (I think it's actually closer to 1200, but it's clearly
    greater than the 250 mile magic figure).
    
    *  No stock sold, no bonds, securities, alimonies, cats, dogs, mice,
    or fish.
    
    *  Wife only worked two months last year (Nov & Dec), part time,
    and claimed zero dependants on that job's W2.
    
    *  I claimed only *2* dependants all year long (where I can actually
    claim *3* at tax time; me, wife, kid).

    Regarding tax brackets, as was mentioned previously.  I don't know
    what tax bracket I would be in without the relocation stuff in there,
    but *with* the relocation stuff, I'm in a 42% bracket, clearly much
    higher than normal.  I never received a tax adder in actual dollars
    in my hand, but there's a column on the relocation statement about
    an amount "paid to the IRS by Digital on my behalf".  This amount
    appears to be not high enough -- did it really then cost me $2K
    to make this move??
    
    Jon

    The "Amount paid on your behalf" is not to the IRS, but amounts
    paid to third parties by Digital (plane tickets, the moving company,
    etc.)  In other words, it money that you spent that didn't pass
    through your hands but went directly to the payee.
    
    I believe that the W-2 form gross income includes the tax adder,
    which is itself taxable (as someone already mentioned).  You should
    be able to figure how much you got by subtracting your salary and
    the bottom line on the moving expense form from your W-2 gross
    earnings.
    
    I'm not sure what DEC does, but at other companies, the tax adder
    doesn't start until you've reached the limit of the relocation
    deductions.
    
    One other thing:  make sure you use the right expenses to come up
    with the relocation deductions.  Some of them may be deductable
    elsewhere, or used elsewhere to reduce your tax liability.  Example
    (I know it doesn't apply but...):  closing costs on a home can be
    used as a moving expense or can be used to adjust the cost basis
    of the home.  If you have excess moving expenses, it is probably
    better to use them in the cost basis.
    
    Charlie
    
    

    Talking with a person from Digital's tax dept this morning, the
    definitive answer is that Digital will "assist" the employee for
    the extra tax that must be paid, but corporate policy dictates nowhere
    that "assists" equals "covers 100%".  He offered to look at it to
    see if the calculations for the tax adder should be modified, but
    said he couldn't guarantee anything.  He also said that "covers
    100%" could be done at the discretion of the incoming cost center
    manager.
    
    Sigh...
    Jon

I've relocated 3 times with DEC. Last year I was on temporary living for
most of the year. Parts of temporary living are deductible and parts are
not. Had it not been for income averaging I would have ended up paying.
Did you make sure you deducted the actual move, etc. form your gross pay?
Also, the $1000 misc. that they give you is added to your gross pay and is
not deductible. Hope this helps.

Jenna

    If you feel that the policy isn't right, go for an exception.
    
    There's even a special form for doing so.  Under $1k only requires
    incoming cost center manager and personnel rep signatures.  Over
    $1k requires group personel manager also.
    
    If the problem is that the policy wasn't applied right, your taxes
    were not calculated right or similar, the exception process will
    put enough light onto it to get it figured out.  If you truly did
    get shafted following the policy, then the exception procedure is
    the way to try to get unshafted.
    
    As stated before, there's no guarantee that you will get satisfaction,
    but if you don't try you're guaranteed *not* to get it.
    
    Steveg (who's just starting the relocation process)

    There have been some things mentioned or implied here which I believe
    are wrong.  In particular, all of your relocation reimbursement
    is NOT taxable.  The thing is that there is a limit on how much
    you don't have to pay tax on.
    
    So the point is, make sure that somehow you are accounting for
    the deductible part of the moving expenses and that you are not
    somehow including them all as income without deducting any of them.
    
    Burns (who has moved twice with DEC and not had too bad a wallop)
    

    The best advice is
    
    	Run (do not walk) to your nearest experienced tax accountant
    	or tax attorney.  He or she will probably recommend that you
    	file for an extension.  If a trained person can't save you
    	more than enough to pay for their help, you have a much more
    	serious problem than it sound like you have.
    
    Bottom line--if you are confused, consult an expert.  It saves
    you time, often saves you money, and saves you worry.
    
    			-John Bishop

    
    Something that is noteworthy,but not made clear he is that the TAX
    ADDED is NOT paid on those items that can be deducted such as points.
    Points can be deducted on your income tax as interest.
    
    difficulty occurs for me when money is received in the second year
    to assist in refinancing.  THOSE points are only deductable as
    1/term per year, yet I get no tax added.  But, its in the 'book'.\
    
    ed badger
    

    Finally got an answer on this one.  I forwarded all my tax forms
    to Digital's tax department, and a kind soul there reviewed everything
    to see what the real story is.  His official statement is that if
    Digital were going to cover my additional tax liability 100%, then
    Digital would still owe me $1,019.  While that's a drop in the bucket
    compared to what I would have been liable for without *any* assist,
    I still think that's a fair chunk of jing.  Now it's up to the cost
    center manager....
    
    Jon

    My cost center manager has reviewed this and asked me to write a
    memo stating what *I* think is fair, and then we will discuss it.
    He said that he doesn't have a figure in mind currently.
    
    I'm not sure how to word such a memo, assuming that simply stating
    that I don't fall into the "stereo-type" portrayed by their program
    that figures out the "correct amount" is not enough.  I guess one
    of the ways I could do it would be to simply ask others what they
    have found.
    
    Therefore, I'm asking.  For those of you who have gone though a
    relocation with Digital, can you give me information, either as
    a percentage or as an approximate dollar figure, of how Digital
    did as far as offsetting your additional tax liability.  If you
    don't want to post that information in a public forum, please feel
    free to vaxmail me.
    
    Thanks --
    Jon