Author: Emre Kicik
For most mobility program managers, year-end is a time to have calls with your various mobility providers to discuss the past year and plan for the next. Now, as we approach the end of 2020, the biggest reflection is likely the impact COVID-19 has had on the global mobility industry. The sudden shift in business, along with travel bans and employees working from anywhere has created never before seen tax situations, which now need additional consideration as companies handle year-end payroll reporting and decide on services and support for their employees.
While you set up your planning calls, be sure to have one with your mobility tax provider. Below we share best practices to help make year-end a little easier as you determine your authorization list for employee tax support, consider any policy adjustments, and handle year-end compensation collection and reporting.
Authorization list of mobile employees
The first step in starting a successful year-end process is understanding which employees may have tax complexities due to their mobility scenario and may require support from the company. In creating a list of employees who will be authorized for services, consider the following:
- Start with your authorization list from last year
- Identify mobile employees who no longer require services
- Add new authorized mobile employees
When identifying new employees to add to your authorization list, it is important to consider employees in the following categories:
Employees with trailing tax liabilities
If your repatriated employees have equity compensation, deferred compensation, or even bonus payments that correlate to the time they were on assignment, they will most likely have trailing tax liabilities in their Host location. This may mean the company could have reporting and withholding obligations in the Host location and the employee could have a tax filing obligation. If there are ongoing Host country requirements, there may also be additional complexities for the employee in handling their Home country tax filings, such that Home and Host country tax support will be required. Make sure to review any ongoing reporting and filing requirements for your repatriated employees with your mobility tax provider as you consider your authorization list.
Employees with foreign tax credit carryovers
The US, like many countries, will allow a tax credit against the tax liability on income earned in another country. This credit is generally limited to the amount of US tax (rather than foreign tax) on the income. So, if your globally mobile employee works in a location with a higher tax rate than the US, it may mean that all of the foreign tax paid will not be able to be used as a credit on the employee’s current US federal tax return.
The good news is that this excess tax can be carried either back one year or forward ten years to offset the US tax on similar foreign source income. It is often beneficial to keep tax equalized employees on your tax authorization list if they have foreign tax credit carryovers and may still have foreign source income (i.e., they have received bonus or equity income that was all or partially earned while working outside the US or if they continue to have business trips outside the US). These rules can be complicated, but your mobility tax provider can assist you in tracking the excess credits and determining if there may be a benefit to ongoing tax preparation services to recover the credits.
Short-term business travelers
Although business travel has been reduced due to travel restrictions relating to COVID-19, it is still important to understand where your employees are working so you can assess any individual or corporate tax implications relating to their work or physical presence in other taxing jurisdictions.
If you aren’t already doing so, consider implementing a policy and process to track your short-term business travelers. As countries continue to increase scrutiny on cross-border activity, this tracking is critical to allow your organization to assess risk in areas such as tax and immigration. Although international business travel has more complexity, don’t forget about domestic business travelers, as they can also create reporting, withholding, and tax filing complexities for both your organization and mobile employees.
Make sure to discuss any year-end reporting and withholding obligations with your mobility tax provider for both your international and domestic business traveler population.
Employees working in tax jurisdictions other than their Home location
Working remotely has become the new norm in the corporate world. Many companies have allowed their employees to work from anywhere during the ongoing pandemic. However, if employees opt to work remotely away from their usual state or country of residence, they may be opening the door for additional reporting and compliance requirements both for the company and the employee. If you have employees working remotely, talk to your mobility tax provider about the tax implications of your work anywhere arrangements.
Download our free checklist of Mobility Tax Considerations for your Work Anywhere Policy
Another population to consider is permanent transferees, including domestic transfers. Most relocation expenses are now considered taxable as a result of the Tax Cuts and Jobs Act which went into effect on January 1, 2018. Even though most international permanent transferees do receive at least one year of Home and Host country tax return preparation services due to complexities in their tax situations, it is less common for companies to provide tax compliance support for their domestic transferees. Instead, most companies will only provide their domestic transferees a tax gross-up on relocation expenses. However, if you opt to gross-up at a higher than needed tax rate, you might be leaving the employee with a significant windfall. If your company has transferred executives or has a large number of transfers, the tax gross-ups can create a significant tax cost for the company. Consider reviewing your policy and employee support for transfer cases with your mobility tax provider.