Is my relocation assistance taxable?
In LA, California I lived in an apt complex. All the tenants were evicted using a law called the Ellis Act. IT WAS A NO FAULT EVICTION. TENANTS HAD NO RESPONSIBILITY IN BEING EVICTED. LANDLORD DID THIS FOR THEIR OWN MODERNIZATION PROJECT. I received what was identified as a Relocation Assistance Payment of $23,000. All tenants will receive payments of various amounts. Landlord designated company forced me to complete a W-9 tax form for the IRS. I tried calling the IRS (they could not answer) and some other sources regarding the taxability status of this payment and read extensively. I learned that this payment is not taxable by the California Franchise Tax Board. I have not been able to determine if it is taxable by the Internal Revenue Service which is the MAJOR CONCERN.
My concerns and questions are 1) If I do or don't receive a 1099 form next year for the payment does this indicate it is or isn't taxable ? 2) If it is taxable why is it designated a Relocation Assistance Payment as opposed to plain income ? 3) I don't have enough expenses to itemize deductions (rather than the standard deduction) on my tax return so I can't claim EXPENSES FOR MOVING INCLUDING BEING FORCED TO LEAVE A BUILDING UNDER RENT CONTROL AND HAVING TO PAY SIGNIFICANTLY MORE TO FIND AND RENT A COMPARABLE APARTMENT"AT "MARKET" COST. 4) What is the fairness of my receiving what is called assistance to me that a large part of which I have to give to the Internal Revenue Service ?
I would greatly appreciate any input or information on this issue or information on any RELIABLE sources that could answer these questions. Thank you in advance for any assistance.
Best Answer
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Hi Bfish,
I'm sure this has been very stressful and your efforts to figure out if this payout is taxable on your federal return is commendable.
Your situation sounds like the 'cash for keys' program. If you do a word search on this on your browser of choice you will find many references to your situation. The owner is paying the tenant to move out, no fault eviction as you mentioned. You will not necessarily find a specific reference in an IRS publication on this, but the reference my colleague provided above on page 31 is most accurate.
For tax filing purposes, the relocation payment is treated 'as if' it was like income from wages or bank interest, therefore taxable, even though it is called a relocation payment. The bottom line is the IRS considers it income. I recommend you plan to add this payment amount to your tax return to get ahead of what tax may be due so you can plan accordingly. It will almost certainly be reported on a Form 1099, but you'll have to wait until 2024 for the form.
Answers
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Hello, Bfish!
Those are great questions!
The IRS does exempt certain types of relocation assistance as nontaxable. See page 31 of this link. However, it does not appear that your situation meets either type of exempted payment.
Within Publication 544, the IRS does state that payments received by a tenant for the cancellation of a lease are treated as an amount realized from the sale of property. See page 2 of that publication.
Keep in mind, an amount included in income is taxable unless it's specifically exempted by law.
- While receiving a Form 1099 may indicate that it's taxable, it is certainly not concrete. There are many times a Form 1099 may be issued in error for nontaxable payments.
- I'm not sure what you mean by not being designated as plain income. Can you clarify?
- Moving expenses are not deductible as an itemized deduction. Job-related moving expenses used to be deductible, but due to the Tax Cuts and Jobs Act, are only deductible for active-duty military members.
- Many tax laws don't seem fair. Like many things, it's not a perfect system.
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Hi Alex,
Thanks for your response. What I meant by not plain income is it is designated to assist me in relocation. That relocation costs great expense to me. My eviction was involuntary as hundreds of other tenants faced the same thing. This was solely to benefit the landlord. It was forced on all tenants. It did not involve eminent domain. It was not a gift. It was compensation for tenants being forced from their homes. While it's called relocation assistance it then is treated by the IRS as gambling winnings or something similar. We are not then being allowed to recover moving expenses although that purportedly was why it was given to tenants for that purpose.
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It's taxable income. Regardless of what it is called. It may qualify you for more benefits. But it's taxable. It shouldn't be subject to self employment tax if properly entered.
