When you perform a civilian permanent change of station (PCS) with the government, the Internal Revenue Service (IRS) considers the majority of your entitlements to be taxable. The Tax Cuts and Jobs Act of 2017 made additional entitlements taxable. Most entitlements are now taxable.

Taxable reimbursements include:

1. En route travel, lodging, meals and transportation including individually billed account/personally procured airfare, government-issued airline tickets-commercially billed account, privately owned vehicle mileage, tolls, taxis, etc.

2. All House Hunting Trip (HHT) expenses, including government procured airfare and per diem.

3. All Temporary Quarters Subsistence Expenses, or TQSE, including lodging and meals.

4. All real estate expenses.

5. Non-temporary household goods (HHG) storage (CONUS).

6. Temporary HHG storage.

7. Miscellaneous Expense Allowance.

8. Relocation services (i.e., Home Marketing Incentive Payments, Property Management, etc.).

9. Withholding Tax Allowance.

10. Relocation Income Tax Allowance.

11. HHG shipment.

12. CONUS Privately Owned Vehicle (POV) shipment.

13. Mobile Home Transportation.

Non-taxable reimbursements include:

1. The Relocation Services Company home sale program remains non-taxable. Under this program, residences of transferees are purchased under a RSC supplier contract and then sold in a separate independent transaction. The cost of those residential sales will continue to be governed by IRS Revenue Rule 2005-74 and are not taxable income to employees.

2. Expenses for extended (non-temporary) HHG storage for employees assigned to OCONUS locations are tax exempt.

3. Allowances for POV shipment to, from, and between OCONUS posts of duty are also exempt from taxation.

Applicable taxes:

A mandatory 22% Federal Income Tax Withholding (FITW), applicable 6.2% OASDI tax (Social Security), and 1.45% Medicare tax are withheld from all taxable entitlements and deposited with the IRS. State and local taxes are not withheld; consult with your local tax advisor to determine if your PCS wages are taxable under your current state and local government regulations.

These taxes will be noted in your Travel Voucher Advice of Payment (AOP). Depending on the tax amounts, you may receive a debt letter for taxes that exceed the reimbursable expenses from your PCS travel.

PCS reimbursements are taxable to you in the calendar year that you receive them, not in the year the expense is incurred. For the above taxable items, DFAS issues a Travel/PCS W-2 by Jan. 31 following the year of reimbursement.

For example, an employee PCSed in December 2019. The PCS reimbursements were received during 2020. The employee received a Travel W-2 for that taxable income in January 2021 and reported that income on their 2020 tax forms.

RITA Reimbursement:

The Relocation Income Tax Allowance (RITA) reimburses an eligible transferred employee substantially all of the additional federal, state, and local income taxes incurred as a result of receiving taxable travel income. Travel W-2 wages/income and withholdings are reported to the IRS. Travel W-2s must be included in your taxable income on your IRS Form 1040 to be eligible for RITA. RITA applies to taxable reimbursements received in the previous year. RITA does not reimburse OASDI or Medicare taxes.

Things you need to know:

1. RITA is not automatic. You must apply for it in the year after receiving taxable travel pay. For example, if you received taxable travel pay in 2020, you may file a RITA in 2021 after you have filed your 2020 taxes.

2. If Withholding Tax Allowance (WTA) was elected, you must file a RITA claim within 120 days of the following calendar year. Failure to file a timely RITA claim will result in a debt owed to the Defense Finance and Accounting Service (DFAS) and collection of the entire amount of WTA paid on your behalf.

3. The amount of income reported on the RITA Certification Form has to match the income tax documentation submitted with the RITA claim.

4. A state must be claimed on the Certification Form with state taxes included for state tax consideration.

5. A RITA cannot be filed if you were only reimbursed RITA in the previous year.

6. The RITA calculation is based on taxable income from the Federal Income Tax Return (Form 1040) (after exemptions and deductions) and the IRS published tax tables.
   

RITA Calculation:

The RITA calculation could be different for each employee. The RITA computation takes into account the employee's filing status, taxable income, and whether or not they claimed a state/locality and if that state/locality considered the travel pay as income.

DFAS accepts RITA claims electronically via the SmartVoucher tool. Log in to SmartVoucher with your CAC or myPay user ID and password. Select "Create New Voucher," then select "PCS" and "DoD Civilian," and you will be on your way to create and submit your RITA claim and supporting documents electronically.

You will need the following documents to file your RITA claim online. In most cases, you'll be filing a claim a year or more after your PCS move, so it's important to download/scan these documents and save them in a convenient place.

1. Travel Authorization/Orders and all amendments (DD Form 1614).

2. Travel Voucher Advice of Payment (AOP) from your PCS Travel Voucher reimbursements. These are posted in myPay, but only for a limited time. Download them and save them in a convenient place.

3. All W-2s (travel and payroll), including spouse’s if filing jointly, for the year you are claiming RITA.

4. Completed Federal Income tax return (Form 1040) including pages pertaining to wages, tips and other compensation and additional income and moving expense deductions.

5. Completed state and local income tax returns if your travel pay was taxed by a state.

6. RITA Certified Statement of Income and Tax Filing Status.
   

Source for this information: DoDEA Connects, 11 May 2021

For more information or if you have questions, email HQPCSRATVouchers@dodea.edu.