A relocation gross-up is an additional payment from the employer designed to cover the taxes the employee owes on a taxable relocation benefit. Without a gross-up, an employee receiving a $25,000 relocation benefit would owe roughly $7,500 to $11,000 in federal, state, FICA, and Medicare taxes, leaving them only $14,000 to $17,500 of after-tax money to pay actual moving expenses. With a properly calculated gross-up, the employer pays both the relocation benefit and an additional payment large enough that, after all taxes, the employee retains the full $25,000 economic value.
Before the Tax Cuts and Jobs Act of 2017, most employer-paid moving expenses were excluded from the employee's income under IRC §132(g) (the "qualified moving expense reimbursement" exclusion) and tax gross-ups were uncommon. For tax years 2018 through 2025, both the §132(g) exclusion and the §217 above-the-line moving expense deduction are suspended for all non-military taxpayers, so virtually every employer-paid moving expense is now ordinary W-2 wages. The gross-up has therefore become a standard component of any relocation package that the employer wants to make economically whole.
The Tax Cuts and Jobs Act of 2017 (Public Law 115-97) suspended two relocation-relevant tax provisions for the 2018-2025 period: (a) the IRC §132(g) qualified moving expense reimbursement exclusion, which had previously allowed employers to reimburse or pay moving expenses tax-free to the employee, and (b) the IRC §217 above-the-line moving expense deduction, which had allowed employees who paid their own moving expenses to deduct the cost from gross income. Both suspensions were originally scheduled to expire on January 1, 2026.
As of May 2026, Congress has not enacted legislation extending either suspension or restoring the prior exclusion and deduction. Verify the current status with IRS Publication 521 (Moving Expenses) for the latest treatment. The §217(g) carve-out for active-duty military members moving pursuant to permanent change of station orders remained in place throughout the suspension period and is not affected.
The practical effect on corporate relocation programs has been dramatic. Every dollar of employer-paid moving expense for non-military employees in 2018-2025 must be added to W-2 Box 1, Box 3 (subject to the Social Security wage base), and Box 5 (no cap for Medicare). Withholding follows the employer's chosen supplemental wage method — typically the flat 22% federal rate for amounts up to $1,000,000 per year. Without gross-up, the employee receives a substantially diminished net benefit.
Naively, an employer might think: "Employee owes 22% federal + 6.2% FICA + 1.45% Medicare = 29.65% combined; I'll just add 29.65% on top of the $25,000 benefit." That approach undershoots because the additional 29.65% payment is itself taxable.
The correct math uses the inverse-rate formula:
Gross-up amount = Relocation benefit ÷ (1 − Combined tax rate)
Total employer cost = Relocation benefit ÷ (1 − Combined tax rate)
Tax-on-tax portion = Total employer cost − Relocation benefit
For a $25,000 relocation benefit with a combined supplemental rate of 29.65%, the math is:
Total employer cost = $25,000 ÷ (1 − 0.2965) = $25,000 ÷ 0.7035 = $35,536
Of the $35,536 paid to the employee, $25,000 is the intended economic benefit and $10,536 is the gross-up to cover taxes. The employee owes $10,536 in tax on the $35,536 total (29.65% of $35,536 = $10,537), leaving $25,000 after tax.
Compare that to the naive approach (29.65% on top of $25,000 = $32,413 total): the employee would owe $9,610 in tax (29.65% of $32,413), leaving $22,803 — short of the intended $25,000 by about $2,200.
Per IRS Publication 15 (Employer's Tax Guide), the 2026 federal flat supplemental wage rate is 22% for supplemental wages up to $1,000,000 paid in a calendar year, and 37% for any supplemental wages above $1,000,000 per employee. Most relocation packages stay below the $1 million threshold, so 22% is the standard input. The flat method is more common than the aggregate method for relocation payments because it simplifies calculation across an entire relocation program.
| State | 2026 supplemental rate | Notes |
|---|---|---|
| California | 6.6% standard, 10.23% for stock options/bonuses | Highest among states with flat supplemental |
| New York | 11.7% (NY State) + 4.25% (NYC) for NYC residents | Combine carefully |
| New Jersey | Aggregate method only; up to 10.75% marginal | No flat rate |
| Massachusetts | 5.0% flat (extended through 2026) | 4% surtax above $1M MA income |
| Illinois | 4.95% flat | Plus 1.5% Chicago for some employers |
| Pennsylvania | 3.07% flat | Plus local Earned Income Tax |
| Texas, Florida, Tennessee, Washington, Wyoming, South Dakota, Alaska, Nevada, New Hampshire | 0% (no state income tax on wages) | FICA and Medicare still apply |
For 2026, the Social Security (OASDI) wage base is $176,100 (Social Security Administration announcement October 2025). The employee-side Social Security tax is 6.2% on wages up to the wage base; Medicare is 1.45% on all wages with no cap. The Additional Medicare Tax of 0.9% applies to wages over $200,000 per year for single filers (the employer must begin withholding at $200,000 regardless of filing status). Relocation benefits paid to highly compensated executives often push total wages above $200,000, so the 0.9% surtax must be factored into the gross-up combined rate.
Combined rate = Federal 22% + State X% + Social Security 6.2% (if wages below base) + Medicare 1.45% + Additional Medicare 0.9% (if applicable).
Common combined rates:
Scenario. Employer pays a $25,000 lump-sum relocation benefit to a renter relocating from Texas to California in 2026. Employee's current annual wages are $120,000 (under both the SS wage base and the $200K Medicare surtax threshold). Employer uses flat supplemental method.
Combined rate. Fed 22% + CA 6.6% + SS 6.2% + Medicare 1.45% = 36.25%.
Gross-up. Total employer cost = $25,000 ÷ (1 − 0.3625) = $25,000 ÷ 0.6375 = $39,216.
Tax-on-tax portion paid by employer. $39,216 − $25,000 = $14,216.
Verification. Employee receives $39,216, owes 36.25% in tax = $14,216, retains $25,000 after tax. ✓
Form W-2 impact. $39,216 added to Box 1, Box 3 (up to wage base), Box 5 (no cap). Employer-side FICA and Medicare match the employee side.
Scenario. Employer pays a $200,000 relocation package (home-sale assistance, household goods, temp housing, tax gross-up) to an executive moving to NYC in 2026. Executive's annual wages are $450,000 (above $200K Medicare surtax; above SS wage base $176,100 — no more SS tax owed).
Combined rate. Fed 22% + NY 11.7% + NYC 4.25% + SS 0% (above base) + Medicare 1.45% + Add'l Medicare 0.9% = 40.3%.
Gross-up. Total employer cost = $200,000 ÷ (1 − 0.4030) = $200,000 ÷ 0.5970 = $335,008.
Tax-on-tax portion paid by employer. $335,008 − $200,000 = $135,008 (67.5% of the intended benefit).
Caveat for over-$1M supplemental wages. If the executive's total supplemental wages in calendar year exceed $1,000,000, the federal rate on the excess jumps from 22% to 37%, requiring a tiered gross-up computation. Most employers handle this by tracking running supplemental wages year-to-date and applying the appropriate rate to each tranche.
For non-military employees in tax years 2018-2025, the employer reports the entire relocation payment (including the gross-up) as ordinary W-2 wages:
Some employers historically used Box 14 (Other) to identify the relocation portion of wages for the employee's records, even when the amount is fully taxable. This is informational only — Box 14 does not change the tax treatment.
State W-2 boxes (16, 17, 18, 19) follow the corresponding state and local treatment of the wages. Some states conform to the federal post-TCJA treatment automatically; others (notably Hawaii, Arkansas, California for certain periods) decoupled and continued to allow the moving expense deduction at the state level. Verify state conformity with your state Department of Revenue or a tax professional.
The TCJA's suspension of §132(g) and §217 does not apply to active-duty members of the Armed Forces moving pursuant to a military order incident to a permanent change of station, per §217(g). For military PCS moves:
Corporate gross-up math does not apply to military PCS payments because the qualified portion is excluded from wages in the first place. Anything paid above the qualified amount (typically rare in JTR-compliant moves) is taxable wages and could require gross-up.
Corporate relocation packages typically use one of three benefit-structuring models, each with different gross-up implications:
Employer pays a fixed dollar amount and lets the employee allocate as desired. Simple to administer, but the employee bears the full tax burden unless the employer also pays a gross-up on the lump sum. The most common structure is "$15,000 lump-sum plus gross-up" — the gross-up adds 30-50% to the employer cost depending on state and tax bracket. Per Worldwide ERC benchmark data, the average lump-sum payment for U.S. domestic renter moves is approximately $25,000-$35,000 inclusive of gross-up.
Employer reimburses actual moving expenses up to a per-category cap (e.g., $8,000 household goods, $3,000 temporary housing, $5,000 home-finding trips). The employer grosses up each category as reimbursed. More complex to administer but typically delivers more of the package value to the employee in actual moving cost coverage. Average homeowner package cost runs $80,000-$100,000 inclusive of gross-up per Atlas World Group surveys.
Employer covers all moving expenses plus a full gross-up on every taxable component. Most common in executive packages and international assignments. Total employer cost can exceed $200,000 for a high-cost executive move. The gross-up alone typically adds 25-45% to direct costs depending on the destination state and the executive's marginal tax position.
An additional payment from the employer to cover the federal, state, FICA, and Medicare taxes the employee would otherwise owe on a taxable relocation benefit. Because TCJA eliminated the moving expense exclusion for non-military taxpayers (2018-2025), virtually every employer-paid relocation expense is now W-2 taxable wages, making gross-up essential to make the employee economically whole.
Because the gross-up payment is itself taxable. Use the formula: Gross-up = Benefit ÷ (1 - Combined Tax Rate). The denominator captures the tax-on-tax effect in a single calculation.
22% federal flat for supplemental wages up to $1,000,000/year per employee; 37% for any amount above. Most relocation packages stay below the threshold and use 22%.
Yes. Combined rate typically includes federal supplemental (22%), state supplemental, employee-side Social Security (6.2% up to the 2026 wage base of $176,100), Medicare (1.45%), and Additional Medicare (0.9% on wages over $200K).
Suspended IRC §132(g) qualified moving expense exclusion and IRC §217 above-the-line moving expense deduction for tax years 2018-2025 for non-military taxpayers. Military members on PCS orders retain both under §217(g). As of May 2026, Congress had not extended the suspension — verify current treatment with IRS Publication 521.
Non-military: full amount in Box 1, Box 3 (up to SS wage base), Box 5 (no cap). Military PCS qualified expenses: Box 12 code P.
No for non-military taxpayers in 2018-2025. Yes for active-duty military on PCS orders under §217(g).
Worldwide ERC and Atlas World Group benchmarks: U.S. domestic homeowner $80,000-$100,000 (inclusive of gross-up); renter $25,000-$35,000; executive with home-sale assistance $200,000+. Gross-up alone typically adds 25-45% to direct costs.