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How is a relocation fee of more than 40k taxed?
With a $40,000 payment there is a 100% chance that the owner will be claiming this as a business expense on their taxes.  The IRS and the state will definitely know about it, and the risk of interest and penalties if it is not claimed as income make the best course of action to see a tax adviser. Because taxes will not be taken out by the property owner, the tax payer should also make sure that the estimated $10,000 in federal taxes, if they are in the 25% tax bracket, doesn't trigger other tax issues that could result in penalties, or the need to file quarterly taxes next year. This kind of extra income could also result in a change or an elimination of a health care subsidy. A unexpected mid-year  change could trigger the need to refund the subsidy received this year via the tax form next April.