Your $30,000 Relocation Package Is Wages. Congress Made That Permanent in 2025, and the 22% Your Employer Withholds Is Probably Not Enough.

Your relocation letter says $30,000. You are not getting $30,000.

That is the whole article, and everything below it is arithmetic and paperwork. But it is worth the ten minutes, because the gap between the number in the letter and the number in your account is somewhere between a nice piece of furniture and a used car, and it is one of the very few numbers in a corporate move that is actually negotiable.

The law changed, and then in 2025 it stopped changing

Before 2018, a company could pay to move you and — if the expenses qualified — the money did not count as your income. That was a real benefit with a real dollar value.

The 2017 tax act suspended both halves of it: your deduction for moving expenses, and your employer's ability to hand you moving money tax-free. The suspension was written with an expiration date at the end of 2025, which is why a large amount of the still-ranking content on the internet says some version of "this is scheduled to return in 2026."

It is not returning. On July 4, 2025, the One Big Beautiful Bill Act (H.R. 1, P.L. 119-21) — at Section 70113, titled "Extension and modification of limitation on deduction and exclusion for moving expenses" — amended IRC §217(k) and §132(g)(2) to make the suspension permanent. Not extended. Permanent.

Two carve-outs, and only two:

• Active-duty members of the Armed Forces moving under permanent-change-of-station orders keep both the deduction and the exclusion.
• Employees and new appointees of the intelligence community moving in 2026 or later are treated the same way, per IRS Tax Topic 455.

If you are a civilian being transferred by a company, there is no version of this where your relocation money is tax-free. The IRS's own W-2 instructions make the point without meaning to: Box 12, Code P exists to report "excludable moving expense reimbursements paid directly to a member of the U.S. Armed Forces or intelligence community." There is no code for yours. There is no code for yours because yours is not excludable. It's just wages.

Direct-bill doesn't save you either. If your employer wires the van line instead of writing you a check, the value is still compensation to you. The money moved; the tax treatment didn't.

Then the 22%

Because a relocation payment is usually made separately from your regular paycheck, it's a supplemental wage, and IRS Publication 15 for 2026 is unambiguous about what happens next:

"The withholding rate on supplemental wages remains 22% (37% if supplemental wages paid to an employee during the calendar year exceed $1 million)."

Twenty-two percent is a withholding rate. It is not your tax rate. It is a placeholder the payroll system uses because it doesn't know anything about your life.

And for a lot of transferees, 22% is simply the wrong number. Corporate relocation exists because a company wants a specific person in a specific chair — which means the population getting relocation packages skews toward people whose marginal federal rate is 24% or 32%, not 22%. For 2026, a single filer crosses into the 24% bracket at $105,701 of taxable income; married filing jointly, at $211,401.

So the mechanics: your employer withholds 22 cents on the dollar, the IRS eventually assesses 24 or 32 cents on the dollar, and the difference is a check you write in April, thirteen months after you already spent the money on movers.

Now add Kansas City

Here is where the national relocation calculator stops being useful, because the layers underneath the federal one are local and nobody's software knows about them.

Missouri. The state's top rate is 4.7%, and it begins at $9,436 of Missouri taxable income. Missouri's income tax is nominally graduated and functionally flat: any transferee earning a normal salary pays the top rate on essentially every marginal dollar. And Missouri's own Employer's Tax Guide (Form 4282) names your situation out loud — its list of supplemental wage payments reads "bonuses, commissions, severance pay, overtime pay, back pay, including retroactive wage increases, or reimbursements for nondeductible moving expenses." The state anticipated you. It permits your employer to withhold a flat 4.7% on it, which is at least honest.

Kansas. Two brackets: 5.2% and 5.58%, with the top rate starting at $23,000 of taxable income ($46,000 joint). Read that again, because it is the single most-missed fact in this metro: Kansas's floor rate is higher than Missouri's ceiling rate. The Kansas side is not the low-tax side on income. It never was.

Kansas City, Missouri. The 1% earnings tax — owed by everyone who lives in the city and, independently, by everyone who works inside the city limits, including people who live in Kansas and drive in. It is a separate article, and it has one.

Does the earnings tax reach a relocation payment? I'll answer this the way I'd want it answered for me, which means telling you where the ground is firm and where it isn't.

The city's published Earnings and Profits Tax Regulations include, in the list of what counts as taxable earnings: "Reimbursements and allowances paid by an employer for an employee's moving expenses, whether to a third party or directly to the employee." Under a nonaccountable plan, the entire reimbursement is taxable. Under an accountable plan, it's taxable to the extent the expenses "would not be deductible by the employee on his federal tax return" — and after Section 70113, no civilian moving expense is deductible on a federal return. The carve-out was written for a world that no longer exists, and it now swallows itself. The same regulations add that "fringe benefits that are taxable on the federal return are subject to the earnings tax."

So the mechanism points hard in one direction: if your work is performed inside Kansas City, Missouri, expect the 1% to land on the relocation dollars too.

The caveat, honestly: the only copy of those regulations I could retrieve is hosted on the city's open-data portal and is titled "Proposed." kcmo.gov returns a 403 to automated fetching, so I could not confirm the adoption date or that this is the operative final text. I am not going to dress that up. Call the KCMO Revenue Division, ask the question in one sentence, and get the answer in writing before you sign the relocation letter. If you do, email me what they say and I'll put it in this article with your name on it.

The arithmetic, in one table

A single filer, base salary in the low six figures — so a 24% federal marginal rate — offered a $30,000 relocation allowance, with a work site inside the Kansas City, Missouri limits.

The 22% flat rate covers $6,600 of an $8,910 problem. It also ignores Social Security and Medicare, which apply to this money as they do to any wages.

Now flip it, because this is the part that matters.

A gross-up is your employer adding extra cash so you net the promised amount after tax. To net $30,000:

• Grossed up at the 22% flat rate: $38,462
• Grossed up at the real 29.7% combined federal + Missouri + city rate: $42,674

Four thousand two hundred dollars. That is the entire negotiation, sitting in a formula nobody in the transaction has looked at. And it gets worse if your marginal rate is 32%, and worse again if the package is $60,000.

(That arithmetic is just arithmetic on published rates. Your actual liability depends on your deductions, your filing status, and how your employer allocates the payment — which is exactly why the answer to "what's my number" is a CPA and not a blog.)

The state line makes the paperwork worse

If you are moving here mid-year and commuting across State Line Road, know this going in: Missouri has no reciprocity agreement with any state. That's not my characterization; that's the sentence in Missouri's own Employer's Tax Guide.

So a Kansas resident working in Missouri files a Missouri nonresident return and a Kansas return. Kansas then applies its credit for tax paid elsewhere — and the Kansas Department of Revenue states it plainly: "Kansas allows a tax credit for income tax paid to another state, foreign country or local unit of government." Local unit of government. That is the earnings tax, and it goes on the Other States Credit worksheet with a copy of your city return attached.

What I will not tell you is that this makes the earnings tax disappear. It is a worksheet-computed, limited credit, not a dollar-for-dollar rebate, and I have not seen a primary source that quantifies the outcome for a supplemental payment. Anyone who tells you it's a clean wash is guessing.

And if you moved from Denver or Chicago in June, add a part-year return in the state you left. Missouri lets a part-year resident run the numbers two ways — Form MO-CR or Form MO-NRI — and tells you outright to compute both and take the lower one. That is a generous rule and also a confession about how confusing this is.

What to actually do, in the order I'd do it

Before you sign the relocation letter, send one email:

Is the relocation allowance grossed up? At what assumed marginal tax rate? Does the gross-up calculation include state and local income tax for the destination work location?

Three sentences. In writing. If the answer is "we gross up at the flat supplemental rate," you now know, precisely, what you're short — and you have a specific, defensible, non-greedy number to ask for instead of a vague "can you do better."

Almost nobody sends that email. It is, dollar for dollar and minute for minute, the best-paid ten minutes of the entire move.

Then confirm the earnings tax question with the city, because a 1% line item on a five-figure payment is a real number and the ground under it deserves to be firm.

Then, and only then, decide where to buy — because the money you clawed back is down-payment money, and the difference between the two sides of this state line is measured in houses, not percentage points.