[Title 41 CFR 302-17.8]
[Code of Federal Regulations (annual edition) - July 1, 2002 Edition]
[Title 41 - PUBLIC CONTRACTS AND PROPERTY MANAGEMENT]
[Subtitle F - Federal Travel Regulation System]
[Chapter 302 - RELOCATION ALLOWANCES]
[Subchapter F - MISCELLANEOUS ALLOWANCES]
[Part 302 - 17--RELOCATION INCOME TAX (RIT) ALLOWANCE]
[Sec. 302-17.8 - Rules and procedures for determining the RIT allowance in Year 2.]
[From the U.S. Government Printing Office]
41PUBLIC CONTRACTS AND PROPERTY MANAGEMENT42002-07-012002-07-01falseRules and procedures for determining the RIT allowance in Year 2.302-17.8Sec. 302-17.8PUBLIC CONTRACTS AND PROPERTY MANAGEMENTFederal Travel Regulation SystemRELOCATION ALLOWANCESMISCELLANEOUS ALLOWANCES17--RELOCATION INCOME TAX (RIT) ALLOWANCE
Sec. 302-17.8 Rules and procedures for determining the RIT allowance in Year 2.
(a) Summary/overview of procedures. The RIT allowance will be
calculated and claimed in Year 2. This can be accomplished as soon as
the employee can determine earned income (as defined herein), income tax
filing status, covered taxable reimbursements for Year 1, and the
applicable marginal tax rates. The RIT allowance is then calculated
using the gross-up formula under procedures prescribed herein. Since the
RIT allowance is considered income, appropriate withholding taxes on the
RIT allowance are deducted and the balance constitutes the net payment
to the employee. Rules, procedures, and the prescribed tax tables for
these calculations are provided in paragraphs (b) through (g) of this
section, and in appendices A, B, and C of this part.
(b) General rules and assumptions. (1) 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:
(i) The employee will claim allowable moving expense deductions for
the same tax year in which the corresponding moving expense
reimbursements are included in income;
(ii) 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 tax 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.
(iii) 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 paragraph (e) of this section.) The formula for
calculating the RIT allowance to be paid in 1988 and subsequent years is
shown in paragraph (f) of this section. 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.
(2) 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 paragraph (b)(1) of this section.
(3) 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 than
that shown on the actual Federal tax return filed with IRS for Year 1 or
changed for any reason after filing of the tax return, so as to affect
[[Page 212]]
the CMTR's used in the RIT allowance calculation. (See Sec. 302-17.10
for claims procedures.)
(c) Determination of covered taxable reimbursements. (1) Generally,
the amount of the covered taxable reimbursements is the difference
between (i) the amount of covered moving expense reimbursements for the
allowances listed in Sec. 302-17.3 that was included in the employee's
income in Year 1, and (ii) 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 regulations to
offset the income resulting from moving expense reimbursements 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 paragraph (b)(1)(ii) of this
section.) If the employee is precluded from claiming moving expense
deductions because he/she does not meet IRS requirements for the
distance test, then the amount of covered taxable reimbursements is the
same as the amount of covered moving expense reimbursements. (See
Sec. 302-17.5(d).)
(2) 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:
(i) The total amount of reimbursement (which was reported as income)
for the expenses of en route travel for the employee and family (see
Sec. 302-17.3(a)) and transportation (including up to 30 days temporary
storage) of household goods (see Sec. 302-17.3(b)) to the new official
station shall be used as a moving expense deduction. (See also Sec. 302-
17.4(e) and (f).)
(ii) The total amount of reimbursement for a househunting trip,
temporary quarters (up to 30 days at new station) and real estate
transaction expenses (see Sec. 302-17.3(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 a househunting trip 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 expenses 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 expenses. If the employee had no reimbursement
for a 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.)
(3) Procedures and examples are provided herein as if all moving
expense reimbursements are received in one year with all moving expense
deductions applied in that same year to arrive at the covered taxable
reimbursements. However, when reimbursements span more than one 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
[[Page 213]]
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.
(4) Although the WTA amount is included in income (see Sec. 302-
17.7), 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.
(5) Agencies are cautioned that there may be moving expenses
reimbursed to the employee that are not covered by the RIT allowance.
(See exclusions in Sec. 302-17.4; also see discussion in Sec. 302-17.7
regarding covered taxable reimbursements versus nondeductible expenses.)
(d) Determination of income level and filing status. In order to
determine the CMTR's 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 on Schedule SE
of IRS Form 1040. (See Sec. 302-17.5(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 agency.) (See Sec. 302-17.7(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 Sec. 302-17.10.) 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.
(e) Determination of the CMTR's. The gross-up formula used to
calculate the RIT allowance in paragraph (f) of this section, requires
the use of two CMTR's--one for Year 1 in which reimbursements were
received and the other for Year 2 in which the RIT allowance is paid.
CMTR's are single tax rates calculated to represent the Federal, State,
and/or local income tax rates applicable to the earned income determined
for Year 1. (See paragraph (d) of this section.) The CMTR's will be
determined as follows:
(1) Federal marginal tax rates. The Federal marginal tax rates for
Year 1 and Year 2 are determined by using the income level and filing
status determined under paragraph (d) of this section and 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 appendices A and C of this part. For example, if the income
level for the 1989 tax year (Year 1) was $84,100 for a married employee
filing a Federal joint return, the Federal marginal tax rate would be 33
percent for Year 1 (1989) (see appendix A of this part) and 28 percent
for Year 2 (1990) (see appendix C of this part). These rates would be
used regardless of how much of the $84,100 was attributable to
reimbursement for the employee's relocation expenses. (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.,
[[Page 214]]
there are no State or local taxes), the Federal marginal tax rates
determined from appendices A and C of this part are the CMTR's to be
used in the RIT gross-up formula provided in Sec. 302-17.8(f). In such
cases, the provisions of paragraphs (e)(2) and (3) of this section, do
not apply.
(2) State marginal tax rate. (i) If the employee incurs an
additional State income tax (see definition in Sec. 302-17.5(a))
liability as a result of moving expense reimbursements, the appropriate
State tax table in appendix B of this part 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 Year 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 paragraph (d) of this section 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.
(ii) The lowest income bracket shown in the State tax tables in
appendix B of this part is $20,000-$24,999. In cases where the
employee's (employee's and spouse's, if filing jointly) earned income as
determined under paragraph (d) of this section is less than this income
bracket, an appropriate State marginal tax rate shall be established by
the employing agency 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 appendix B of this part
for the $20,000-$24,999 income bracket for the particular State in which
an additional tax obligation has been incurred.
(iii) 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 paragraph (e)(5) of
this section. This is accomplished by multiplying the applicable Federal
tax rate for Year 1 by the applicable State tax rate. For example, if
the Federal tax rate is 33 percent for 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.
(iv) 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
paragraph (e)(5) of this section. The general rules in paragraph
(e)(2)(iv) (A) through (C) of this section apply in determining the
applicable single State marginal tax rate in such cases.
(A) 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 paragraphs (e)(2) (i) through
(iii) of this section, shall be treated as being imposed on the entire
reimbursement, and shall be used in the CMTR formula.
(B) 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
[[Page 215]]
taxation. In this situation, the highest of the applicable State
marginal tax rates, as determined under paragraphs (e)(2) (i) through
(iii) of this section, shall be used in the CMTR formula.
(C) 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 paragraphs (e)(2) (i) through (iii) of this section,
shall be used in the CMTR formula.
(3) Local marginal tax rate. 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 paragraphs
(e)(3)(i) through (iii) of this section.
(i) If the employee incurs an additional local income tax (see
definition Sec. 302-17.5(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 Sec. 302-17.10) 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 paragraph (d) of this section 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 employing
agency 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 Sec. 302-17.10(b)(2).)
(ii) 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 of 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 paragraph (e) (1) or (2) of this section by the
applicable local tax rate. For example, if the State tax rate for 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.
(iii) The situations described in paragraph (e)(2)(iv) of this
section 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.
(4) Marginal tax rates for the Commonwealth of Puerto Rico, the
Commonwealth of the Northern Mariana Islands, and the U.S. possessions--
(i) The Commonwealth of Puerto Rico. A Federal employee who is relocated
to or from a point, or between points, in the Commonwealth of Puerto
Rico 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
paragraphs (e)(4)(i)(A) through (C) apply in determining the marginal
tax rate applicable for transfers to, from, or between points in Puerto
Rico.
(A) The applicable Puerto Rico marginal tax rate shall be determined
by using the income level determined in paragraph (d) of this section
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. The Puerto Rico tax tables are contained in appendix
D of this part.
(B) 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
[[Page 216]]
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 paragraph
(e)(5)(iii) of this section 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 paragraph (e)(2) of this section
(when applicable), and the local marginal tax rate as determined under
paragraph (e)(3) of this section. For purposes of applying the Puerto
Rico CMTR formula in paragraph (e)(5)(iii) of this section, 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 paragraph (e)(2) of this section.
(C) 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
paragraphs (e)(5) (i) and (ii) of this section. This formula will
include the Federal marginal tax rate as determined under paragraph
(e)(1) of this section, the State marginal tax rate as determined under
paragraph (e)(2) of this section (when applicable), and the local
marginal tax rate as determined under paragraph (e)(3) of this section.
The State marginal tax rate will be applicable if one or more States
impose tax on the moving expense reimbursement.
(ii) The Commonwealth of the Northern Mariana Islands and the U.S.
possessions. 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 the 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., the 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 paragraphs (e)(5) (i) and (ii)
based solely on the Federal marginal tax rate; when applicable, the
State(s) marginal tax rate; and the local marginal tax rate.
(5) Calculation of the CMTR's. As stated above, the gross-up formula
for calculating the RIT allowance requires the use of two CMTR's.
However, the required CMTR's 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 appendix B of
this part 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
CMTR's are designed to adjust the State and local tax rates to
compensate for their deductibility from income for Federal tax purposes.
(i) Calculation of the CMTR for Year 1. The following formula shall
be used to calculate the CMTR for Year 1.
CMTR Formula: X = F + (1-F)S + (1-F)L
[[Page 217]]
Where:
X = CMTR for Year 1
F = Federal tax rate for Year 1
S = State tax rate for Year 1
L = local tax rate for Year 1
(A) Federal, State, and local taxes incurred. If the employee incurs
Federal, State, and local income taxes on moving expense reimbursements,
the CMTR formula may be solved as follows:
Example:
If:
F = 33 percent of income
S = 6 percent of income
L = 3 percent of income
Then:
X = .33 + (1.00-.33).06 + (1.00-.33).03
X = .3903
(B) Federal and State income taxes only. If the employee incurs tax
liability on moving expense reimbursements for Federal and State income
taxes but none for local income tax, the value of ``L'' is zero and the
CMTR formula may be solved as follows:
Example:
If:
F = 33 percent of income
S = 6 percent of income
L = Zero
Then:
X = .33 + (1.00-.33).06
X = .3702
(C) Federal and local income taxes only. If the employee incurs a
tax liability on moving expense reimbursements for Federal and local
income taxes but none for State income tax, the value of ``S'' is zero
and the CMTR formula may be solved as follows:
Example:
If:
F = 33 percent of income
S = Zero
L = 3 percent of income
Then:
X = .33 + (1.00-.33).03
X = .3501
(ii) Calculation of the CMTR for Year 2. The calculation of the CMTR
for Year 2 is the same as described for Year 1, except that the Federal
tax rate for Year 2 is used in place of the Federal tax rate for Year 1.
State and local tax rates remain the same as for Year 1. The following
formula shall be used to determine the CMTR for Year 2:
CMTR Formula: W = F + (1-F)S + (1-F)L
Where:
W = CMTR for Year 2
F = Federal tax rate for Year 2
S = State tax rate for Year 1
L = local tax rate for Year 1
(iii) Calculation of CMTR's for Puerto Rico. The following formula
shall be used to calculate the CMTR for transfers to, from, or between
points in Puerto Rico. (This formula is different from the formulas
provided in paragraphs (e)(5) (i) and (ii) of this section since the
Federal marginal tax rate is disregarded.)
CMTR Formula: X = P + S + L
Where:
X = CMTR for Year 1 and Year 2
P = Puerto Rico tax rate for Year 1
S = State tax rate for Year 1, when applicable (See Sec. 302-
17.8(e)(4)(i)(B).)
L = Local tax rate for Year 1
(f) Determination of the RIT allowance. The RIT allowance to cover
the tax liability on additional income resulting from the covered
taxable reimbursements received in Year 1 is calculated in Year 2 as
provided below:
(1) The RIT allowance is calculated by substituting the amount of
covered taxable reimbursements for Year 1, the CMTR's for Year 1 and
Year 2, and the total amount of the WTA's paid in Year 1 into the gross-
up formula as follows:
Formula:
[GRAPHIC] [TIFF OMITTED] TR20NO01.002
Where:
Z = RIT allowance payable in Year 2
X = CMTR for Year 1
W = CMTR for Year 2
R = covered taxable reimbursements
Y = total WTA's paid in Year 1
Example:
If:
X = .3903
W = .3448
R = $21,800
Y = $5,450
Then:
[[Page 218]]
[GRAPHIC] [TIFF OMITTED] TN27FE02.000
Z= .5957($21,800)-.9306($5,450)
Z= $12,986.26-$5,071.77
Z= $7,914.49''
(2) There may be instances when a WTA was not paid in Year 1 at the
time moving expense reimbursements were made. In cases where there is no
WTA to be deducted, the value of ``Y'' is zero and the formula stated in
paragraph (f)(1) of this section, for calculating the amount of the RIT
allowance (Z) due the employee in Year 2 may be solved as shown in the
following example:
Example:
If:
X = .3903
W = .3448
R = $21,800
Y = Zero
Then:
[GRAPHIC] [TIFF OMITTED] TR20NO01.004
Z = .5957 ($21,800)
Z = $12,986.26
(3) Certain States do not allow the deduction of all or part of the
covered moving expenses that are deductible for Federal income tax
purposes. The State gross-up to cover the additional State income tax
liability resulting from the covered moving expense reimbursements
received in Year 1 that are deductible for Federal income tax purposes
but not for State income tax purposes is calculated in Year 2 as
follows:
(i) The State gross-up is calculated by substituting the amount of
covered moving expense reimbursements that are deductible for Federal
income tax purposes but not for State income tax purposes, the Federal
tax rate for Year 1, the State tax rate for Year 1, and the combined
marginal tax rate for Year 2 into the State gross-up formula as follows:
Formula:
[GRAPHIC] [TIFF OMITTED] TR20NO01.005
Where:
A = State gross-up
F = Federal tax rate for Year 1
S = State tax rate for Year 1
W = CMTR for Year 2
N = covered moving expense reimbursements that are deductible for
Federal income tax purposes but not for State income tax purposes
Example:
If:
F = .33
S = .06
W = .3448
N = $9,250
Then:
[GRAPHIC] [TIFF OMITTED] TR20NO01.006
A = .0614 ($9,250)
A = $567.95
(ii) Add the State gross-up to the RIT allowance as calculated using
the formula in paragraph (f)(1) of this section. The result is the RIT
allowance adjusted for those States that do not allow moving expense
deductions. Example:
RIT allowance payable in Year.............................. $7,914.49
Plus adjustment factor..................................... +567.95
------------
Total.................................................... $8,482.44
(4) If the amount of the RIT allowance is greater than zero, it is
payable to the employee on the travel voucher as a relocation or moving
expense allowance. The RIT allowance amount is included in the
employee's gross income for Year 2 and, therefore, subject to
appropriate withholding taxes. (See net payment to employee in paragraph
(g) of this section.) The RIT allowance amount will be reported on IRS
Form W-2 for Year 2 (including applicable income tax withholding
amounts) and on IRS Form 4782 for the employee's information.
(5) If the calculation of the RIT allowance results in a negative
amount, the employee is obligated to repay this amount as a debt due the
Government. (See Secs. 302-17.7(e)(2) and 302-17.9(b).)
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(6) Any changes to the employee's income level or filing status for
Year 1 that would affect the marginal tax rates (Federal, State, or
local) used in calculating the RIT allowance must be reported to the
agency by the employee as provided in Sec. 302-17.9(b)(2). (See also
Sec. 302-17.10 for certified statement regarding these changes.)
(g) Determination of the net payment due employee in Year 2. Since
the amount of the RIT allowance is income to the employee in Year 2, it
is subject to the same tax withholding requirements as all other moving
expense reimbursements. Agencies should determine the appropriate
amounts for withholding taxes under their internal tax withholding
procedures. The amount of withholding taxes is deducted from the RIT
allowance to arrive at the net payment to the employee.
[FTR Amdt. 98, 66 FR 58196, Nov. 20, 2001; 67 FR 7219, Feb. 15, 2002; 67
FR 9045, Feb. 27, 2002]