Relocation Considerations
Consider this common scenario faced by many employees: Your supervisor calls you into her office on a Friday afternoon and asks you to transfer to the New Jersey office. She says the new job includes a $10,000 increase in salary, and loads of potential "in the future." She gives you the weekend to think about it. What do you say? No doubt, a million questions start popping into your head. You've heard New Jersey is expensive to live in. Is $10,000 enough? How much are the houses? What will your property taxes be? What about income taxes? What about your wife's job? Will the kids like it there? Will you like the new job? What is the impact on your career if you refuse the job transfer?

According to psychologists relocation is among the most stressful events that can happen to a person, or a family. Changing jobs, which often occurs when relocating, is also high on the stress index. For many people the decision to relocate involves a complex set of variables of a financial, personal and emotional nature. These factors contribute to the stress in varying degrees, depending upon the individuals involved. The questions above can be broken down into two broad categories: objective and subjective. The emotional and personal aspects of relocation are subjective and thus difficult to model. Fortunately this is not true of the financial ramifications, which are more objective and easier to quantify. This article will discuss many of the financial variables, which should be considered, by employers and employees before a relocation decision is made.

When deciding on compensation packages for transferred employees, employers often do not consider that each employee is an individual, with unique financial considerations. No two families are alike and a relocation analysis must reflect differences in income tax brackets, housing size, property taxes, spousal income, dependents, etc. Using generic cost of living indices does not produce an accurate calculation of the financial impact of relocating. Using only a customized analysis will produce a true apple to apples comparison. The battle cry of the relocating employee is "AT LEAST KEEP ME WHOLE." In other words, the employee should not have to relocate, absorb the emotional stress, and lose money as well. The after tax cash flow should be at least zero.

An accurate, individualized, analysis has other benefits for the employer. These are:

• If the employee is presently living in a high cost of living area, and the employee is moving out of this area to a lower cost of living area the analysis will most likely show a positive cash flow, which will encourage the employee to relocate.
• Employers in low cost areas will find the analysis useful in encouraging employees to transfer into the area from higher cost of living areas, since the analysis will probably show a positive cash flow. Lower salaries can be justified, and demonstrated to the employee, thus saving expenses.
• Employers in high cost of living areas can use the analysis for employees moving into the area, from lower cost areas, when cost of living concerns are negatively impacting the relocation decision, and there is a resistance to relocation. An analysis may convince the reluctant employee that the after tax cash flow isn't as bad as they thought. Often, reluctant employees must relocate to high cost areas for career advancement purposes, but want just compensation, calculated in gross salary dollars. A confidential analysis will show an employer how much the employee should be equitably paid, to compensate for cost of living differences.
• Employers can use the analysis to make sure employees are comparing apples to apples in their relocation decision. Many employees attempt to upgrade their standard of living, usually through unfair housing and community comparisons, at the employer's expense.

Most employees and employers perform a very superficial analysis of the financial impact of relocating. This is understandable since it is very complicated from a tax and financial planning point of view. The typical analysis involves a comparison of housing in the new area with the increased salary offer, if any. Or the salary is set based upon a comparison to other employees in similar positions. The effect upon a family's cash flow in the first year after the move is much more complex than this simple analysis. As a result costly errors can be made which affect not only the family's financial health but also their happiness as well. An employee who feels unfairly treated is not as productive, and may seek other employment. If the employee is worth relocating he/she is worth fair compensation. After all, if suitable talent were available locally the relocation would be unnecessary. Relocation mistakes result in further relocation and additional stress for both the family and for employers. Performing a proper analysis before a relocation offer is accepted reduces stress by decreasing uncertainty. This allows the employee to evaluate the relocation offer more accurately, and provides benefits to the employer by increasing employee happiness and retention.

Before describing the financial changes caused by relocation in more depth it should be noted that the analysis should be performed, not just for the relocating employee, but also for the entire family. Often relocation can cause major financial changes for spouses, companions, fiancés, children, dependent parents, and others. Also, all changes should include the federal, state and local tax impact, where appropriate, at the individual's projected marginal rates of tax.

The analysis should compare the old salary with the change in family salary, wages, and business income. It should not include changes that would have occurred anyway had the family not relocated, since this would obscure the real cost, and would be unfair to the employer. The change should be net of federal, state, and local (city) income taxes, as well as social security taxes. A common problem experienced by many families, sometimes called the "trailing spouse" problem, occurs when the spouse of a relocated employee experiences great difficulty finding employment in the new area. The analysis should be able to analyze the projected decrease in the spouse's income for the first year after the move.

Another area often neglected by relocating individuals is the change in wealth caused by changes in automobile expenses. This can be caused by changes in commuting distances, automobile insurance rates, personal mileage (for example to return home to see friends and relatives, or to access qualified medical care), tolls and parking, use of a company car, or an increase or decrease in amounts paid by employers for business use of your personal car. Some of these changes have tax effects and some do not. Most people underestimate how expensive it is to operate an automobile, probably because the major portion of the expense is depreciation (a non-cash item), and because the expenses are paid gradually.

Changes in job benefits are often a factor if the employee is changing employers, and occasionally when transferring within the firm. Items to consider here include changes in medical insurance, life insurance, plans, and other perquisites such as day care.

Changes in state and local income taxes should be included, net of federal tax effects. The family's income should be recalculated using the tax laws of the new state, and city (if there are city income taxes). Consideration must be given for employees choosing to live in one state and work in another, such as the millions of people who live in New Jersey and work in New York. In such cases they will pay non-resident income taxes in the state they are working in. Most states have reciprocity agreements to prevent double taxation, which permit residents to deduct taxes paid to other states.

Changes in housing costs are, of course, a major item. It is important to make valid, meaningful, comparisons when comparing housing costs between areas. For example, comparisons should be made which compare the same size houses (square footage). Also included should be the real estate taxes, and rent, if the individual is not buying. Of course, the federal income tax impact of these changes should be included. Another factor to be considered is the change in interest rates caused by exchanging the old mortgage for a new one. If the employee is buying a cheaper house in the new area he/she may incur federal and state capital gains taxes. This tax should not be included in the analysis because it occurs only once, and should not be part of the calculation of ongoing salary. Of course, the employee should be reimbursed for this tax, since the relocation caused the imposition of the tax. Likewise, if the relocation causes the family to have to sell investment real estate, a partnership, or stock in a closely held business then there will be capital gains or losses incurred because of the realization of gains or losses on the sale of these assets. Distance or increased job responsibilities may require that these investments be sold. If the family wishes to compare owning vs. renting, or renting vs. owning, the analysis should be able to do this, although it may not be a fair comparison for negotiation purposes.

Finally, the analysis should not include the cost of moving household belongings, travel expenses including meals and lodging for the family, temporary living expenses in the new area, pre-move house hunting trips, real estate agent's fees, legal fees to buy and sell houses, points to payoff an old mortgage or secure a new mortgage, and redecorating expenses. These expenses are one-time expenses, which will not repeat in future years, and therefore should not be included when calculating salary. Of course, the employee should be reimbursed for these expenses, but if the purpose of the analysis is to show gross salary equivalents then moving expenses should be excluded, since they are not recurring. Most employers will pay some or all of these expenses, but it is wise to be specific about what will be reimbursed. The reimbursement of deductible expenses is not taxable, while the reimbursement of non-deductible expenses is completely taxable. Therefore the employee must be reimbursed for federal, state, local, and social security tax impact on the portion of the reimbursement, which is non-deductible. This is called a 'tax gross-up' payment. Since the tax gross-up payment is also taxable the calculation becomes a little complex. Many employers do not calculate this amount correctly. They usually do not reimburse for the state, local and social security tax impact, and they assume all taxpayers are in the same tax bracket.

This article has highlighted the important financial variables, which should be considered when making salary offers to employees who are relocating. An analysis based upon a superficial comparison of cost of living indices does little to reduce the very significant stress associated with relocating and changing jobs. The analysis must be individualized to each family, since families have different financial profiles such as different incomes, house sizes, etc. Relocation can be a significant financial planning tool when relocating to a lower cost of living area, which can increase cash flow and provide significant lifetime benefits, which will help employees, achieve their financial goals. A thorough analysis will not only reduce pre-move stress by eliminating financial uncertainty but will increase post-move happiness for all involved.

• Obtain an IRS Change of Address form, call 1-800-829-1040.
• Gather moving supplies, boxes, tape, and rope.
• If moving far away, make any necessary travel arrangements like airline, hotel, and rental car reservations, or plan your travel route if driving.
• Call a moving company or make truck rental reservations to move yourself.
• Finalize real estate and apartment rental needs.
• Place legal, medical, and insurance records in a safe and accessible place.
• Give your mailers your new address (using Address Change Notification Cards):
  -Friends and family members
  -Banks, insurance companies, and other financial institutions
  -Charge card and credit card companies
  -Doctors, dentists, and other service providers
  -State and Federal Tax authorities and any other government agencies as needed.
  -IRS
• Save moving receipts (many moving expenses are tax deductible).
• Make maps of your new neighborhood to familiarize yourself and your family with your new area.
• Plan your moving budget

• Inform gas, electric, water, cable, local telephone and trash removal services of your move. Sign up for services at your new address.
• Get new cable service for your new home.
• Inform long distance phone company of your move. Sign up for long distance service at your new address.
• Recruit moving-day help.
• Confirm travel reservation.
• Arrange to close or transfer your bank account, if appropriate.

• Set aside moving materials like a tape measure, pocket knife, packing boxes, tape and markers.
• Pick up rental truck.
• Check oil and gas in your car.
• If traveling, make sure you have tickets, charge cards, and other essentials.

• Keep the following supplies and accessories on hand:
  -Boxes, all sizes
  -Bubble wrap or other cushioning material
  -Marking pens
  -Tape measure
  -Furniture pads or old blankets
  -Packing tape and scissors
  -Money and credit cards
• Label each box with the room in the new home to which it should be delivered.
• Number the boxes and keep a list of what is in each box.
• Clearly mark fragile items.
• Pack a bag of personal items you'll need during the move (change of clothes, toiletries, medicine, maps, food, and drinks). Keep it in an easy-to-find place when you pack.
• Keep a medical kit accessible.
• If you have children, pack a bag of games and activities for the trip.