Payroll Tip of the Month: Don’t Confuse a Relocation Reimbursement with a Relocation Bonus (July 2025 TogetHR Times)
Payroll Tip of the Month: Don’t Confuse a Relocation Reimbursement with a Relocation Bonus
By Alison T. Bruns
In a tight labor market, offering relocation support is no longer a perk—it’s a strategic tool. Whether you’re hiring top talent from across the country or transferring an existing employee to a new location, relocation benefits help reduce stress and remove barriers that could stand in the way of accepting a new position. But when it comes to structuring those benefits, it’s essential to understand the difference between a relocation reimbursement and a relocation bonus.
While these two terms are often used interchangeably, they are not the same—and treating them as such can create compliance risks, budgeting surprises, and unhappy employees. This month, we’re breaking down the distinctions, advantages, and challenges of each to help you make the right choice for your organization and your team.
What is a Relocation Reimbursement?
A relocation reimbursement is a structured process where an employer agrees to pay back an employee for qualified, documented moving expenses. These typically include things like:
Professional packing and moving services
Temporary housing
Storage of household goods
Travel to the new work location
Real estate commissions or lease break fees
Shipment of vehicles
The key here is documentation. Employees are required to submit receipts and proof of payment to be reimbursed, and employers often impose limits or thresholds to maintain cost control. Some organizations partner with third-party relocation vendors to streamline the process, ensure IRS compliance, and reduce the administrative burden.
Pros for Employers:
Provides visibility into relocation spending
Helps prevent misuse of funds
Easier to budget and align with actual costs
Supports compliance with company policy and tax regulations
Challenges:
Slower process for employees, who must front costs
Requires administrative support for receipt tracking and approval
Can feel rigid or burdensome if not managed carefully
This model is often best suited to companies that want control and accountability over relocation dollars. It also works well when offering relocation support to multiple employees or managing a complex move.
What is a Relocation Bonus?
In contrast, a relocation bonus—sometimes called a lump sum or relocation allowance—is a flat amount of money paid to the employee to cover moving costs at their discretion. This bonus is usually processed through payroll and is treated as taxable income.
Companies may choose to “gross up” the payment to offset the tax burden for the employee. For example, if you offer a $10,000 relocation bonus and want the employee to keep that full amount after taxes, you might actually pay $13,000 or more depending on applicable tax rates.
Pros for Employees:
No out-of-pocket expense ahead of reimbursement (use of personal funds)
Greater flexibility in how the funds are used
Can simplify and speed up the transition to a new location
Considerations for Employers:
Limited visibility into how the funds are spent
No guarantee the money is used solely for relocation
If not structured carefully, it can lead to dissatisfaction if the bonus doesn’t cover real-world costs
A relocation bonus is a good fit when you’re looking for simplicity and speed, especially for less complex moves or when you trust the employee to manage their own relocation experience.
Which One Should You Offer?
The decision to use a relocation reimbursement or bonus depends on several factors, including your company's budget, culture, size, and need for oversight. There’s no one-size-fits-all approach—but there are some best practices to consider:
Use Reimbursement When:
You want to tie support to actual, documented expenses
Budget predictability is a priority
You need to manage compliance and reporting more tightly
You want to align with IRS accountable plan standards
Use a Bonus When:
You need to move quickly and minimize red tape
You want to simplify the process for HR and payroll
You’re relocating employees with different needs and preferences
You’re relocating a single hire or providing executive-level support
Some companies opt for a hybrid approach, combining the structure of a reimbursement for major expenses (like home sale assistance or moving services) with a small bonus to cover incidentals or personal preferences. This model offers a nice balance between control and flexibility.
Key Payroll Considerations
Whether you offer a reimbursement or a bonus, you’ll need to be thoughtful about how it flows through payroll:
Bonuses must be reported as taxable income unless otherwise exempt, and appropriate federal, state, and local taxes must be withheld.
Reimbursements under an accountable plan can be excluded from taxable wages if properly documented and submitted within a reasonable time (usually 60 days).
Gross-ups should be calculated carefully and consistently.
Be sure to clearly outline terms in the offer letter or relocation policy, including what’s covered, what’s taxable, and any repayment obligations if the employee leaves early.
If relocation assistance is offered inconsistently or poorly communicated, it can lead to confusion, mistrust, or even legal issues. Formalizing your approach—whether through policy updates or standard templates—can protect your organization and improve the employee experience.
Final Thoughts
Relocation support can make or break a candidate’s decision to accept a job—or an employee’s willingness to take on a new assignment. But not all relocation benefits are created equal.
By understanding the differences between relocation reimbursements and bonuses, and choosing the right approach for your business, you’ll be better equipped to support your employees, manage costs, and stay compliant.
Have questions about structuring relocation support or need help developing a compliant relocation policy? Our payroll and HR experts are here to help.
Sources:
IRS Publication 521: https://www.irs.gov/pub/irs-pdf/p521.pdf
IRS Publication 15: https://www.irs.gov/pub/irs-pdf/p15.pdf
IRS Publication 15-B: https://www.irs.gov/pub/irs-pdf/p15b.pdf
