Relocation and tax witholding.

A couple of years ago, I relocated from the east coast to the west coast of the US, to pursue a new opportunity. The company that I was joining paid for all the relocation costs. However a bunch of the relocation expenses are not tax deductible and show up in the W2 as taxable income. Although my company grossed up the amount (compensated me for the tax impact of these expenses), I ended up in a higher tax bracket that I had anticipated, had some deductions (like child tax credit) phased out. Overall I paid more taxes than I had anticipated.

When companies calculate the gross up amount, they look at the tax withholding rate of the employee. In hind site, when I relocated, to compensate for being pushed to a higher tax bracket and phased out deductions, I should have reduced the tax withholding on my W2 to reflect the higher tax bracket the relocation expenses paid by my company would put me into. While this would have reduced the cash that I got on hand, I would have received a more accurate (and higher) gross up on taxable relocation expenses from the employer which would have compensated somewhat for the higher tax rate that I found myself in.

If you end up with too much being withheld, you would get a refund back in the 1040 next year.