# 302-17.66 RITA calculation methodology and procedures under the two-year process.
(a) Agencies will calculate the RITA after receipt of the RITA voucher.
(b) The RITA is itself taxable income to an employee. To account for taxes on the RITA, the agency will gross-up the RITA by applying the Combined Marginal Tax Rate (CMTR) to the final amount rather than the reimbursed amount.
(c) Thus, the agency calculates the RITA by multiplying the CMTR (using the State and local tax tables most current at the time of the RITA calculation) by the total of all covered taxable relocation benefits during the applicable Year 1, and then subtracting any WTA(s) from the same Year 1 from that total. That is:
****Equation 1 to Paragraph (c)
Where:
C = CMTR.
R = Reimbursements, allowances, and direct payments to vendors covered by WTA during Year 1.
Z = Total grossed-up WTAs paid during Year 1.
If an agency offers the employee the choice, the WTA is optional. If the employee has declined the WTA, enter zero for element Z in the calculation in this paragraph (c).
(d) The RITA is likely to be different from the sum of the WTA(s) paid during Year 1, if any, because the WTA is calculated using a flat rate, established by the IRC, while the RITA is calculated using the CMTR. Therefore:
(1) If the RITA calculation this section results in a negative value (that is, if the agency's calculation shows that it withheld and reported too much money as income taxes), then the agency will report this result to the employee and will send the employee a bill for the difference, to repay the excess amount that it sent to the IRS on the employee's behalf as withheld income taxes. The IRS will credit the employee for the full amount of withheld taxes, including the excess amount, on the income tax return for Year 1; therefore, employees must repay the excess amount to their agency within 90 days, or within a time period set by the agency. If an employee is required to repay an amount in Year 2 that was included as wages on the W-2 in Year 1, employees may be entitled to a miscellaneous itemized deduction on their Federal income tax return in Year 2.
(2) If the RITA calculation in this section results in a positive value (that is, if the agency's calculation shows that it did not withhold enough money as income taxes), then the agency will pay the RITA before the end of Year 2 and will report it to the IRS as part of the employee's income for that year. Also, after the agency has paid the RITA, it will provide a W-2 that shows the RITA as taxable income.
(e) At an agency's discretion, employees may receive one W-2 that includes all of their taxable relocation expenses, WTA (if any), and RITA (if any), along with their regular payroll wages, or employees may receive one W-2 for their regular payroll wages and a separate one for their taxable relocation expenses, WTA, and RITA.