Managing Your Lump Sum Program


Daniel T. Bloom SCRP

Snowed under by the paperwork involved with a relocation process. One of the ways to lessen this burden is to pay for certain costs through the use of a lump sum assistance program. In a lump sum program, the costs for the house-hunting trips, the temporary living and the final trip are lumped together and issued as a check for the costs. The paying of the funds in this manner require no itemization or documentation for the funds on behalf of the employee. In fact, the employee gets to spend these funds in anyway they so choose. If the lump sum assistance is actually more than the total costs, the transferee gets to keep the windfall.

The problem with this approach is that the Internal Revenue Code states that anything paid to or on behalf of the transferee for moving expenses is considered income. It must be reported on their W-2 and is subject to withholding and payroll taxes. One of the methods for reducing the amount of potential tax liability is to have an outside company manage the process for you.

Here is how the program works:

Establish an account. This account is set up to cover the approximate costsanticipated by the move. These funds are not paid to the employee. This account is set up between the employer and their outside consultant.

Transferee begins the process. As the move begins, the transferee submits his/her expenses and the funds are deducted from the account and paid directly to the vendor. These expenses represent the total amount that the transferee is incurring for the move.

Remainder is divided. The dollars spent are then divided into two categories. First, are those costs that are considered excludable from the income tax calculation. Specifically these are the costs for the household goods movement and the final trip to the new location. All the other costs incurred are considered non-excludable and must appear on the W-2.

The benefit of this process is that the transferee incurs the tax liability only for those expenses actually incurred and not for the full amount of the pre-established account. Any remaining funds left in the account after the move are returned to the corporate client.

A well managed lump sum program is a win-win situation for both the employee and the employer. From the employee's perspective, he or she has the funds to cover the major expenses incurred for the move but is not impacted for funds not actually needed. The employer benefits from the reduced paperwork required, the reduced liability for gross-up on the taxes and fewer policy exceptions being requested. This means they can conduct their hiring efforts on a highly cost effective basis.

Daniel Bloom is President of Daniel Bloom & Associates;Inc, a company who specializes in providing custom designed relocation services to corporations nationwide. By going to our website at you are welcome to join our relocation-issues mailing list. Ask your peers about your relocation questions. You can contact Dan Bloom at or by phone at 727-581-6216.