Are realtor fees reimbursed by employer taxable as wages?!

[MJG CPA]

Client's ex-employer has reimbursed him for realtor fees incurred in selling his house as part of a separation agreement. (He moved from IL to SD to take job, then they terminated his contract after 6? months, so he is moving back. Ouch!) They have withheld federal income tax and 7.65% FICA taxes so it appears they are treating it as wages. It seems like at most they should issue a 1099 to report this payment. Client has not cashed check yet. T

he realtor fees go to the client's basis in the home, so if reimbursed, he just has less basis, correct? Should this reimbursement really be treated as wages? It seems incorrect to me and I would like to try to get it changed before he cashes the check.

Any suggestions or a push in the right direction would be appreciated.

[Don in Upstate NY]

Client's ex-employer has reimbursed him for realtor fees incurred in selling his house as part of a separation agreement. (He moved from IL to SD to take job, then they terminated his contract after 6? months, so he is moving back. Ouch!) They have withheld federal income tax and 7.65% FICA taxes so it appears they are treating it as wages. It seems like at most they should issue a 1099 to report this payment. Client has not cashed check yet.

The realtor fees go to the client's basis in the home, so if reimbursed, he just has less basis, correct? Should this reimbursement really be treated as wages? It seems incorrect to me and I would like to try to get it changed before he cashes the check.

I think the employer's treatment of the reimbursement is correct. See "Reimbursement of Non-deductible Expenses" on page 10 of Pub 521 (Moving Expenses).

[MJG CPA]

It appears you are right. Thanks for the tip.

[JohnH]

I have several clients whose employer moves them from time-to-time and reimburses all expenses. Other than the specifically excludable moving expenses, all other reimbursements are taxable income. This employer is nice enough to gross up the reimbursement in order to make the employee whole, but they are not required to do so. In any event, the realtor fees are always included in the gross-up and added to the W-2 as wages, taxable like any other earned income.

[kcjenkins]

And because the amount is included in wages, it does NOT reduce basis in the house.