Civilian Permanent Change of Station Tax Law Changes

Civilian Permanent Change of Station Tax Law Changes Town Hall Session Integrity - Service - Innovation

Agenda Integrity - Service - Innovation • Civilian PCS Tax Law Changes • Customers Serviced by DFAS • Timeline of Events • PCS Taxable Entitlements • Civilian PCS (prior, current and future travelers) • Payments to Third Party Vendors • RITA • WTA • Sample claims • Resources

Civilian PCS Tax Law Changes Integrity - Service - Innovation • What you need to know: • The Tax Cuts and Jobs Act (TCJA) of 2017 made most PCS entitlements taxableand reported as taxable income to the IRS • DFAS implemented a system change on Oct 30, 2018 to properly collect tax withholding per TCJA for direct reimbursements • For reimbursements processed Jan 1 – Oct 29, 2018 travelers had debts established • 2018 W-2s • Travelers should file their 2018 tax returns by the IRS filing deadline and use issued 2018 W-2 • Corrected 2018 W-2s for third party payments • Will be issued after process to withhold taxes from vendor payments is complete • ECD late 2019 – traveler will file amended tax return and supplemental Relocation Income Tax Allowance (RITA) • Payments to Vendors • Additional debts may be owed for taxable moving expenses DFAS paid directly to vendors on the travelers behalf

Civilian PCS – DFAS Customer Base Integrity - Service - Innovation

Timeline of Events Congress passed Tax Cuts & Jobs Act (Effective 1 Jan 2018) Note: additional guidance received from IRS and GSA from Feb – Nov 2018 Travel W-2s distributed If received WTA, April 30 is deadline to file RITA or will incur a debt DFAS conducts Town Hall sessions myPay SmartDoc emailed to those eligible for RITAs • DFAS issued direct reimbursement debt letters DFAS implemented a software update to apply tax changes to travel orders (Per May IRS Notice 2018-75) Travelers begin to assemble and file RITA claims after filing personal income taxes • DFAS issued temp storage debt letters myPay SmartDoc email debtnotifications issued to affected employees Integrity - Service - Innovation

Non-Taxable Civilian PCS Entitlements For a full list of taxable entitlements, go to: http://www.dfas.mil/TaxLawChange Integrity - Service - Innovation • All PCS expense payments are taxable except the following entitlements: • Long-term storage of household goods for employees with duty assignments outside the continental U.S. (OCONUS); • Privately owned vehicle shipments to, from, and between OCONUS locations; and • Residential sales conducted through the agency relocation services company home sale program

Civilian PCS Taxable Entitlements Note: Tax withholding is required for taxable payments made directly to the employee or to a third party on the employee’s behalf. Note: Items such as TQSA, FTA, LQA, COLA and RAT are not moving expenses affected by TCJA. Integrity - Service - Innovation

Civilian PCS Orders Issued Prior to 2018 Integrity - Service - Innovation • PCS orders issued prior to Jan 1, 2018 and reimbursements received for that move in 2018 • DFAS did not apply the TCJA to PCS reimbursements (pursuant to the IRS Notice 2018-75) • Traveler will not owe a debt to DFAS for additional tax withholding on reimbursements paid by DFAS • Only moving expenses paid in 2018 that were taxable prior to the TCJA will be reflected as income on the Travel W2 • Payments of moving expenses to third party vendors for temp storage over 30 days may result in tax debts to the traveler

Civilian PCS Orders Issued in 2018 Integrity - Service - Innovation • Travel direct reimbursement claims processed Jan 1 – Oct 29, 2018 • Taxes were not withheld from the claims in accordance with TCJA • After Oct 30 system change – DFAS calculated the tax withholding and remitted the proper amount to the IRS on the traveler’s behalf • Traveler owes DFAS for the amount of taxes remitted to the IRS • Debt letters were issued to ~3500 travelers the first week of February • 2018 Travel W-2 reflect the withholdings paid by DFAS to the IRS • Travel direct reimbursement claims processed after Oct 29, 2018 • Appropriate taxes were withheld from reimbursements per TCJA • No debt will be owed to DFAS for additional tax withholdings from reimbursements paid to the traveler by DFAS • Payments of moving expenses to third party vendors • Temp Storage – taxes properly remitted to IRS and traveler owes amount to DFAS (no change to current process) • Other than temp storage – additional system change required and may result in corrected W-2 and tax debts to the traveler (example, HHG shipment)

Civilian PCS Claims Paid On or After Oct 30, 2018 Integrity - Service - Innovation • Income tax withheld from direct reimbursements per TCJA • Taxes withheld at these rates: • 22% Federal Income Tax Withholding (FITW) • 6.2% Social Security • 1.45% Medicare • Payments of moving expenses to third party vendors • Currently working a secondary system changeto properly withhold taxes from third party vendor payments • May result in a tax debt to the traveler • Process for temp storage tax withholding is already in place and will not result in additional debt

2018 Civilian PCS Debts Integrity - Service - Innovation • Official debt letters mailed Feb 2019 • Separate debt letters issued (Avg debt for both is $250): • Civ PCS direct reimbursement claims paid Jan 1 – Oct 29, 2018 • Temp storage for third party vendor storage payments • Relocation Income Tax Allowance (RITA) claim • Traveler may file in 2019 to recoup substantially all Federal and State tax burden associated with their relocation • Traveler can file RITA prior to paying direct reimbursement debt • Debt notification packages will include: • Notification of overpayment • Payment Options • Payment in full within 30 days without fees • Voluntary Repayment Agreements • Supporting documentation available upon request

Third Party Payments Note: This process applies ONLY to the customers that DFAS services for Civilian PCS. Integrity - Service - Innovation • The IRS treats payments made to a third party vendors on behalf of an employee as taxable income • Additional system change required and may result in corrected W-2 and tax debts to the traveler • Temporary Storage (current process): • DFAS remits tax withholding to the IRS on the traveler’s behalf – this transaction results in a debt the traveler owes to DFAS • TCJA amended timeframe to begin at day 1 versus day 31 • Temp storage debt letters properly reflect withholdings starting at day 1 • Recommend traveler file 2018 tax return by IRS filing deadline • Corrected W-2s for additional third party payments issued later in 2019 • Traveler will file amended tax return and supplemental RITA claim

Relocation Income Tax Allowance (RITA) Integrity - Service - Innovation • Travelers can submit a RITA claim after filing income tax return for the year the PCS reimbursement was received • RITA Tools: • Instructions: https://www.dfas.mil/civilianemployees/civrelo/relocationincometax.html • eTutorial: https://www.youtube.com/playlist?list=PLhx_8nsfXqVj-Pf34sZ8pPVe4MOuxXN5- • RITA is designed to reimburse most of the federal and state income tax paid as a result of the PCS move • Travelers not eligible for RITA (also not eligible for WTA): • New appointee • Assigned under the Government Training Act • Returning from an overseas assignment for the purpose of separation from Government service

Withholding Tax Allowance (WTA) • WTA acts as an advance on the RITA and is deducted from any RITA reimbursement computed in the following year • WTA is computed on the Federal income tax withholding only; it does not cover state, local, Social security, and Medicare taxes • WTA is computed at 22% • WTA is elected by filling out the WTA employee agreement form and submitting with PCS claims • If WTA is elected – traveler MUST file a RITA claim within the first 120 days of the following calendar year • Once WTA is elected, it applies to all future taxable reimbursements • Travelers cannot select specific entitlements to apply WTA (i.e. TQSE with WTA and MEA without WTA) • RITA computation results in a WTA Debt • When the taxable income after deductions results in a Federal tax rate of LESS THAN 22%, a WTA debt will occurin the RITA computation • As an example, if the employee is in the 12% Federal tax bracket, then WTA (paid at 22%) was overpaid and the employee would owe a debt Integrity - Service - Innovation

Sample Civilian PCS Travel Claim Examples Integrity - Service - Innovation

Civ PCS – Sample Claim #1 Example Purposes Only PCS Entitlements Withholdings Remitted to IRS Travel Claim Reimbursement Withholdings Remitted to IRS RITA Claim Reimbursement -- Based on 2018 per diem rates. -- These examples are provided for demonstrative purposes only and may not reflect the traveler’s individual tax situation. Integrity - Service - Innovation

Civ PCS – Sample Claim #2 Example Purposes Only PCS Entitlements Taxable income added to W-2 Withholdings Remitted to IRS Travel Claim Reimbursement RITA Claim Reimbursement -- Based on 2018 per diem rates. -- These examples are provided for demonstrative purposes only and may not reflect the traveler’s individual tax situation. Integrity - Service - Innovation

Civ PCS – Sample Claim #5 Example Purposes Only PCS Entitlements Taxable income added to W-2 Withholdings Remitted to IRS Travel Claim Reimbursement “negative” RITA situation -- Based on 2018 per diem rates. -- These examples are provided for demonstrative purposes only and may not reflect the traveler’s individual tax situation. Integrity - Service - Innovation

Resources Integrity - Service - Innovation • Civ PCS Web Page: http://www.dfas.mil/TaxLawChange • Federal Travel Regulation (FTR): https://www.gsa.gov/cdnstatic/FTR_Amendments_Through_2018-01.pdf • Frequently Asked Questions: https://www.dfas.mil/dfas/civilianemployees/civrelo/Civilian-Moving-Expenses-Tax-Deduction/Frequently-Asked-Questions.html • DFAS Customer Care Center: • Email: DFAS-CIVREL-Questionsonly@mail.mil • Civ PCS Phone Options: 888-332-7366 option: 1; 1 • Civilian Relocation Questions: https://www.dfas.mil/AskDFAS.html

Backup Slides Integrity - Service - Innovation

PCS Order of Events (2018 notional) Integrity - Service - Innovation • PCS orders issued in 2018 • Claims submitted and paid in 2018 • Travel Pay 2018 W-2s were issued in Jan 2019 and include: • Direct PCS reimbursements paid in 2018 • Third party temporary storage reimbursements paid to vendors in 2018 • Debt letters for recoupment of taxes issued in Feb 2019 • Travelers file income tax returns using the 2018 W-2 tax statements received from DFAS • Travelers begin submitting RITA claims • System change to collect taxes on other (non-temporary storage) third party payments scheduled for later in 2019 • DFAS will issue corrected W-2s for other (non-temporary storage) third party payments made in 2018 during the latter part of 2019 • Travelers will file amended tax return using 2018 W-2C, if applicable • Travelers may file supplemental RITA claims with W-2Cs • DFAS will issue 2019 W-2s in January 2020 for third party payments made in 2019

PCS Order of Events (2019 notional) Integrity - Service - Innovation • PCS orders issued in 2019 • Employee should save any receipts for lodging and any expenses of $75 or more during their move • Contact the Transportation Office to setup HHG pick-up for shipment • Employee should file a WTA selection form with the Travel Office if they want WTA paid on their entitlements • Employee should file a DD1351-2 travel claim for any authorized entitlement that is performed during their PCS move • SF1199A Direct Deposit form – ensure that your banking info is correct with Travel and Payroll • Perform HHT (as applicable) • Perform en-route travel, TQSE, sell/buy house (examples) • DFAS receives HHG info from TRANSCOM • In January 2020, traveler receives travel W-2 • Traveler files 2019 income tax return • If traveler received WTA, must submit RITA claim within first 120 calendar days. Otherwise, the RITA claim can be submitted after filing income taxes.

Civilian Permanent Change of Station Tax Law Changes