With the new year comes new caps, tax tables and allowances from the U.S. Internal Revenue Service (IRS). Listed below are the areas related to relocation for 2023.
Standard Mileage Rate
The U.S. Internal Revenue Service (IRS) announced an increase of the optional standard mileage rates in mid-2022 to 62.5 cents per mile for the second half of 2022. On 1 January 2023, the rate increased again to 65.5 cents per mile driven.
Most companies follow the IRS guidelines to calculate the mileage reimbursements for final move expenses when driving to the new location.
This rate increase will affect mobility programs:
- If you are an NEI client who has elected to follow IRS guidelines for your expense administration, nothing is needed at this time. NEI will incorporate the mileage change into your expense reimbursement policy, as agreed.
- If you are an NEI client who has not elected to follow the government established mileage rates in the past, NEI will continue to follow your prescribed rates unless you advise us that your company is changing the rate. Please contact your NEI Client Relations Manager directly, if you would like to confirm or update your current rate.
As some companies gross-up non-salary relocation benefits at supplemental rates for federal and state levels, most companies also withhold at supplemental tax rates for non-grossed items. Keeping on-top of supplemental rates and explaining the potential tax implications to your relocating employees can aid them in knowing what to expect when taxes are due.
Federal supplemental rates remain unchanged, holding steady at 22 percent withholding for supplemental wages under $1 Million and 37 percent withholding for non-salary wages over $1 Million.
For easy reference, we are providing the current state supplemental rates in the table below:
Federal Income Tax
While federal income tax rates remain unchanged from the 2022 tax year, 2023 income tax brackets have shifted dramatically to accommodate an over 40-year high inflation rate. Additionally, the 2023 standard deduction amounts have increased.
Due to these adjustments, most relocating employees can expect a modest reduction in their tax-liability. New grads stand to benefit the most from the changes, as the majority of graduates earned less than a full year’s wages when starting in the summer or fall.
See below for 2023 adjusted tax brackets which reflect an approximate nine percent increase from the prior year ranges:
Standard deduction amounts have also increased:
Social Security Wage Limit
The Federal Insurance Contributions Act (FICA) requires companies to withhold three separate taxes from the wages paid to employees. The largest tax of these three is the Social Security, also known as the Old Age, Survivors and Disability Insurance Program which is set by statue at 6.2 percent for both employees and employers to pay on the first $160,200 of wages in 2023. This is up from $147,000 in 2022.
The second element referred to as the Medicare Tax, is also split evenly between employees and employers, is not subject to a wage limit and remains at 1.45% for both parties. There are no changes to the remaining element called Additional Medicare tax. This rate is 0.9% for the employee with wages over $200,000 for single filers and $250,000 for married filing jointly. The employer does not get charged for this additional tax.
As your relocation partner, NEI is here to explain year-end tax questions for your relocating employees. If you have any question about these changes, please contact your NEI Client Relations Manager at 800.533.7353.
This material has been prepared for informational purposes only and is not intended to provide, and should not be relied on for tax, legal or accounting advice. Please consult your own tax, legal and accounting advisors before engaging in any transaction.