Tax Treatment for NYC BigLaw relocation, bar expenses & broker fees Forum

[Anonymous User]

What's the tax treatment for things like relocation reimbursement, bar course (direct bill in my case), bar expenses, and broker's fees? Are they treated as taxable income? If so, how do they pro-rate the imputed income to my paychecks? Across my entire first year? Or first X number of months? Going to DPW if this is firm dependent

[Anonymous User]

They're all income. There is a tax exemption for permanent relocation. I don't know if a broker's fee falls into that, but I'm sure there's many a westlaw case on it. The rule is that anything you get that isn't only usable for your job is income. For example, if you fly to Denver to take the bar exam, which has value outside of DPW then that's income just like if you went for vacation. If you fly to Denver to meet a client then it's non-income. The only big law perk that isn't taxable is Seamless because the food only has use when you're working for DPW. Technically, if you hate eating at your desk and bring the Seamless bag home but don't declare it, you're guilty of tax evasion.

Didn't mean to be OP.

[Anonymous User]

They're all income. Technically, the bar review course should be the value paid, and not necessarily how much Barbri's sticker is. There is a tax exemption for permanent relocation. I don't know if a broker's fee falls into that, but I'm sure there's many a westlaw case on it. Big law firms have their books in order so you can bet they're disclosing everything they paid out, and therefore want to make sure you do too. Didn't mean to be OP.

Is there a gross up?

[jrass]

They're all income. Technically, the bar review course should be the value paid, and not necessarily how much Barbri's sticker is. There is a tax exemption for permanent relocation. I don't know if a broker's fee falls into that, but I'm sure there's many a westlaw case on it. Big law firms have their books in order so you can bet they're disclosing everything they paid out, and therefore want to make sure you do too. Didn't mean to be OP.

Is there a gross up?

I doubt it. If you have the guts to ask them then go for it. But taxes aren't really the firm's fault, and a lot of partners pay millions in taxes every year. Losing a lot of money to taxes is a sucky part of life you need to get used to. The silver lining is that at least your taxes partially go towards keeping the streets safe and building libraries when in Braveheart those taxes just went to a nobleman who abused his commoners.

[kartelite]

I don't think you'll find a "westlaw case," this is a basic tax question, not a legal question. Anyway, just look up the tax code, there is a section on moving expenses, like what you're allowed to deduct. Same with work-related higher education (bar review costs). Basically, the general rule is that anything the firm pays on behalf of you, you do not need to report as income; anything the firm pays to you, you do need to report as income; and you can deduct various things you pay like moving expenses (check the IRS page regarding broker fees) and qualifying bar review courses, assuming you're itemizing deductions.

ETA: I don't know the detailed tax treatment, just saying where to look...and it's likely to be different in different cases (I know moving expenses depend on your distance and circumstances like time in location, etc.).

[Anonymous User]

Would also be interested to hear about this from someone with actual experience.

1) Are the amounts reported on W-2? I believe relocation and broker fees are paid directly to service providers by the firm and bar expenses are reimbursed to associates.

2) If the income is reported on W-2, did your firm gross up? If there was no gross up, were you able to claim deductions for the bar expense or relocation (provided you meet IRS requirements)?

[WheatThins]

This is all really basic Fed Income Tax stuff, and isn't unique to you, your firm, or law firms in general.

It's all taxable income, end of conversation.

[Anonymous User]

This is all really basic Fed Income Tax stuff, and isn't unique to you, your firm, or law firms in general.

It's all taxable income, end of conversation.

Respectfully disagree. Even if it's taxable income, it would still be helpful to know if it's common practice for firms to gross up.

[Anonymous User]

What's the tax treatment for things like relocation reimbursement, bar course (direct bill in my case), bar expenses, and broker's fees? Are they treated as taxable income? If so, how do they pro-rate the imputed income to my paychecks? Across my entire first year? Or first X number of months? Going to DPW if this is firm dependent

DPW first year:

If you move from more than 50 miles out the movers and flight to NY I believe are tax free. All bar expenses including barbri and travel and hotel to Albany/Buffalo is taxed as is your brokers fee reimbursement (which is 100% up to a $2500 cap FYI).

Logistically, they take all of these taxes out of your first three pay checks (associates are paid monthly). You can take a $7500 advance in June and you don't start repaying that until your fourth paycheck after all the taxes are taken care of. I think the advance repayment is $750/month from months 4-13. This part is firm dependent, I have friends elsewhere who start paying their advances back ASAP and are on their own to pay taxes as they see fit.

Happy to answer any follow up questions.

[Anonymous User]

Former DPW associate here - I asked and they don't gross up. You can try asking, maybe they changed their policy. You get taxed on the broker and bar expense, but not the relocation if it's a move from over 50 miles.

I wish I had known this going in (though I probably should've) as I would've negotiated a lower barbri fee and broker fee. Oh wells, drop in the bucket all things considered.

[Anonymous User]

I'm going to a V20 and am super jealous of your brokers fee reimbursement.

[Anonymous User]

I'm going to a V20 and am super jealous of your brokers fee reimbursement.

You don't really need a broker. Going door to door sucks, but it's the easiest 3k you'll ever make and you can use the offer letter as proof of salary so you shouldn't have to put down too much extra money.

[El Pollito]

This is all really basic Fed Income Tax stuff, and isn't unique to you, your firm, or law firms in general.

It's all taxable income, end of conversation.

Respectfully disagree. Even if it's taxable income, it would still be helpful to know if it's common practice for firms to gross up.

it's not.

[jrass]

This is all really basic Fed Income Tax stuff, and isn't unique to you, your firm, or law firms in general.

It's all taxable income, end of conversation.

Respectfully disagree. Even if it's taxable income, it would still be helpful to know if it's common practice for firms to gross up.

it's not.

Think about how you would feel if your waiter asked you to gross up his tip, and then you'll know how this question will make the firm feel.