GTN Author: Matt Yadamiec
Matt joined GTN in 2015 and serves as Senior Manager in GTN’s Atlantic region. He has over 13 years of expatriate tax experience, advising companies on matters such as Home and Host country tax filing requirements, global compensation and equity reporting, and cross border tax compliance and consulting. He enjoys collaborating with his clients, offering responsive and personalized assistance for their global mobility needs and providing explanations to issues in a clear and concise manner for both program managers and mobile employees. +1.484.615.7107 | firstname.lastname@example.org
When it comes to equity reporting and withholding, companies do not always realize they may be non-compliant if they have a mobile workforce. These companies may not understand the rules or have processes in place to allow for the tracking of employees. For these reasons, the payroll reporting and withholding, related to equity income, may be handled as if the individual had only worked in one location. However, this approach is often not appropriate for mobile employees working in multiple locations. Here, reporting and withholding rules can vary for each jurisdiction.
To illustrate the payroll challenges for mobile employees with equity compensation, consider the following common scenario:
- The company grants restricted stock units (RSUs) to an employee who is a tax resident in Jurisdiction A.
- After the grant and before vesting, the employee relocated to Jurisdiction B.
- The RSUs vest while the employee is a tax resident in Jurisdiction B.
In this scenario, an employer may face trailing reporting and withholding obligations in Jurisdiction A in addition to reporting in Jurisdiction B. The employee may be taxed in Jurisdiction A on the portion of the equity income that was earned there, generally based on the time worked in that location during the earnings period. This example could involve employees with international or state-to-state travel.
To help you identify if you have an equity non-compliance issue due to a mobile workforce, first ask yourself these questions:
- Do you have any international permanent relocations?
- Do you have state-to-state transfers?
- Do you have any business travelers?
- Do you have any remote workers or employees who are working from “anywhere”?
If the answer is yes to any of those questions, you may have a tax withholding issue. Companies should work to ensure they are following the rules for equity awards in the jurisdiction(s) where the employee has been working over the life of the award to determine when and how much is subject to employer reporting and withholding obligations. The employee will also need to understand where they may have individual tax filing and payment requirements.
Why does it matter if you are compliant?
The US, along with a number of other countries, have enacted new oversight and accounting rules that focus on stock-based compensation. These rule changes have been driven by technological developments which allow for improved tracking of financial accounts, executives working in multiple locations, and a desire for increased tax revenue. As a result, any company with employees on the move should conduct a thorough review of the company’s tax obligations in the countries and states where their employees are working. Failure to proactively address company and employee compliance requirements could lead to increased audits and increased financial, reputational, and legal risks for your organization and your mobile employees.