The Tax Cuts and Jobs Act’s Effect on Recruitment Incentives

The Tax Cuts and Jobs Act (TCJA) that became law on December 22, 2017, is beginning to have an impact on physicians, specifically with the recruitment incentives most health systems offer to new physicians. Traditionally, relocation or moving expenses provided to new physicians as a recruitment incentive were not considered direct income to the recruited physician since the payment is to a third-party moving or relocation company. Further, this consideration was appropriate when all of the respective moving expenses are those that are considered Deductible Moving Expenses per Internal Revenue Service guidelinesThe TCJA has suspended the personal deduction for relocation expenses and the exclusion from income of the employer-paid relocation expenses through the end of 2025. This means that all moving or relocation expenses reimbursed by an employer after January 1, 2018, are taxable as income to the individual--even if they are paid to an outside third-party on behalf of the individual.

Therefore, concerning evaluating physician compensation for fair market value and commercial reasonableness, moving or relocation expenses now should be considered as part of the overall income to the recruited physician. As with other one-time recruitment incentives, we continue to recommend that relocation expenses be amortized and “forgiven” over the term of the physician’s agreement. This action helps create a retention component and also spreads the economic impact of the incentives over a more extended period. So, if a physician has a three-year contract, the relocation expense paid at the onset of employment can be forgiven and amortized over the term of the agreement. It is also essential to consider the collective impact of all of the one-time recruitment incentives. Specifically, this means that all relocation, sign-on, tail insurance, student loan assistance, and other one-time incentives must be considered collectively.