Key Considerations for Year-End Mobility Tax Planning

For most mobility program managers, year-end is a time to have calls with various mobility vendors to discuss the past year and plan for the next. These year-end discussions are crucial to the efficient functioning of your mobility program, as they keep you informed about the evolving landscape of global mobility and the associated tax implications.

The ever-changing nature of international business, along with emerging work trends and technological advancements, has created complex tax scenarios that require careful consideration as companies handle year-end payroll reporting and decide on services and support for their employees.

When setting up your year-end planning calls, be sure to include one with your mobility tax provider. Create a list of your key concerns and questions beforehand. Doing so will help you make the most of your discussion and ensure you cover all critical areas. Below we share leading 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, observe 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 employees no longer needing services and 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 is recommended. 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 all 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 (e.g., 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 is a benefit to ongoing tax preparation services to recover them.

Short-term business travelers

As business travel continues to be an integral part of many organizations, it's 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 tax 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.

Employees working in tax jurisdictions other than their Home location

Many companies now offer employees the option to work from various locations, including different states or countries. 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 themselves.

If you have employees working remotely from different tax jurisdictions, it's crucial to talk to your mobility tax provider about the potential tax implications of these flexible work arrangements. They can help you navigate issues such as:

• Multi-state taxation for domestic remote workers
• International tax considerations for employees working across borders
• Permanent establishment risks for the company
• Social security and benefits implications
• Payroll reporting and withholding requirements in various jurisdictions

Consider developing a comprehensive policy that outlines the tax implications and responsibilities for employees who choose to work from locations other than their designated office. This can help set clear expectations and mitigate potential risks associated with flexible work arrangements.

Download our free checklist of Mobility Tax Considerations for your Work Anywhere Policy

One-way transfers

Another population to consider is one-way transferees, including both international and domestic transfers. Tax implications for these employees can be complex and long-lasting, making it crucial to provide appropriate support.

For international one-way transfers:

• Most companies provide at least one year of Home and Host country tax return preparation services due to the complexities in their tax situations.
• Consider ongoing support for issues like trailing liabilities or deferred compensation that may have tax implications in both countries for years after the transfer.

For domestic one-way transfers:

• While less common, tax support for domestic transferees is becoming increasingly important due to varying state tax laws and remote work considerations.
• Instead of just providing a tax gross-up on relocation expenses, consider offering tax preparation services, especially for high-level executives or employees moving between states with significantly different tax structures.

Tax considerations for all one-way transfers:

• Review your policy on tax gross-ups for relocation expenses. If you opt to gross-up at a higher than needed tax rate, you might be leaving the employee with a significant windfall.
• For companies with a large number of transfers or high-value executive moves, the tax gross-ups can create a significant tax cost. Regular policy reviews can help optimize these costs.
• Consider the impact of equity compensation, deferred compensation, and retirement benefits in both the origin and destination locations.

Leading practices for one-way transfers:

• Develop a clear policy on tax support for one-way transfers, differentiating between international and domestic moves if necessary.
• Provide education to transferees on the tax implications of their move, including any ongoing obligations in their former location.
• Consider implementing a tax equalization policy for a set period post-transfer to ease the transition, especially for international or high-cost domestic moves.
• Regularly review your one-way transfer policies with your mobility tax provider to ensure they align with current tax laws and company objectives.

Policy considerations for changing tax landscapes

As tax policies and regulations continue to evolve both domestically and internationally, it's crucial for mobility program managers to stay informed and adaptable. Recent years have seen significant changes in tax laws across various countries, which can have substantial impacts on globally mobile employees and their employers.

Consider the following when reviewing your mobility tax policies:

• International tax reform: Many countries are implementing or considering major tax reforms. Stay informed about changes in key locations where your employees are based or frequently travel.
• Digital nomad visas and remote work policies: As more countries introduce specific visas for remote workers, consider how these might affect your mobile employees' tax situations.
• Changing residency rules: Some countries are tightening or changing their tax residency rules, which could affect long-term assignees or frequent travelers.
• New tax credits or deductions: Be aware of any new tax benefits introduced in relevant jurisdictions that could benefit your mobile employees or your company.
• Global minimum tax initiatives: Keep an eye on international efforts to implement global minimum corporate tax rates, as these could affect your company's tax strategy for international assignments.
• Sustainability-related tax incentives: As countries introduce tax incentives for green initiatives, consider how these might apply to your mobility program and relocation practices.

Regular policy reviews are essential to ensure your mobility tax approach remains current and competitive. Your tax provider can assist in benchmarking your policies against industry standards and identifying areas where policy adjustments might be beneficial for both your company and your mobile employees.

Year-end compensation collection and reporting

Did you have a proper year-end compensation review process in place last year, or were you scrambling around trying to resolve W-2 corrections?

Either way, we recommend having a process in place make the year-end collection of compensation as smooth as possible.

Identify what went well in your previous compensation reporting process and what can be improved. Talk to your mobility tax provider and relocation management company to assign responsibilities. Agree on a timeline around collecting and reviewing relocation expenses and reporting them as taxable compensation, as applicable.

Making the necessary adjustments to your processes will enable you to get your compensation reporting under control for the next filing season.

Tax considerations for employee benefits and reimbursements

When reviewing your mobility program's expenses and reimbursements, it's important to understand the tax implications of various benefits provided to employees.

Employee benefits

Employee benefits can generally be categorized as either non-taxable or taxable. Non-taxable benefits are excluded from an employee's gross income, while taxable benefits must be reported as income. It's crucial to correctly classify and report these benefits to ensure compliance with tax regulations.

Common non-taxable benefits:

• Health insurance premiums paid by the employer
• Contributions to qualified retirement plans
• Certain educational assistance programs
• De minimis fringe benefits

Common taxable benefits:

• Cash bonuses
• Personal use of company car
• Moving expenses
• Certain gifts and awards

From an international perspective, it is important to note that some benefits provided in the Host country may have different tax treatments than in the Home country.

Expense reimbursements

From a US perspective, expense reimbursements can be either taxable or non-taxable to the employee, depending on whether they meet the requirements of an "accountable plan" as defined by the IRS. To be considered non-taxable, all of the following conditions must be met:

• Expenses must have a business connection
• Employees must adequately account for these expenses within a reasonable period of time
• Employees must return any excess reimbursement or allowance within a reasonable period of time

If any of these conditions are not met, the reimbursements may be considered taxable wages to the employee.

Special considerations for mobile employees

For mobile employees, there are additional complexities to consider, including:

• International tax treaties and agreements: These can affect the taxation of certain benefits and reimbursements for employees working across borders.
• Tax equalization policies: If your company uses tax equalization, you'll need to carefully consider the tax treatment in the Home and Host locations for items paid by the company (e.g., gross-ups and other tax payments) and those paid by the mobile employee (e.g., tax equalization settlement payment paid to the company).
• Assignment duration: The projected and/or actual duration of a mobile employee’s assignment can change the tax treatment for a given benefit. For example, the tax treatment of housing and per diem payments can vary depending on whether the assignment is considered temporary or indefinite.

Home and Host country rules can vary, and special tax planning may be available. For these reasons, it is important to work with your mobility tax provider to review employee compensation and benefits in advance and throughout the duration of an assignment to ensure that tax reporting and withholding is handled appropriately and that any planning is implemented and kept current for applicable regulatory purposes.

Year-end tax payments

Once reportable compensation is identified, you may want to have a calculation to determine whether there is a need for any additional tax gross-up payments to avoid underpayment penalties. If there are any expected Host country tax payments, consult with your mobility tax provider to determine the appropriate timing of those payments. This timing should take into account factors such as potential tax credits, tax residency position, and the minimization of penalties and interest.

Leading practices for compensation collection

• Regular policy review: Continuously review your policies to ensure they align with current tax laws and regulations.
• Clear documentation: Maintain detailed records of all benefits and reimbursements provided to employees.
• Employee education: Ensure your mobile employees understand the tax implications of their benefits and reimbursements.
• Leverage technology: Use appropriate software and systems to track and categorize expenses accurately.
• Expert consultation: Work closely with your mobility tax provider to navigate the complexities of benefit and reimbursement taxation, especially for your mobile employee population.

See how we can help efficiently manage your global relocation payments reporting.

Ensuring mobility program success

While we have outlined some of the more typical year-end processes and additional items that should be considered, it is important that you establish a well-defined plan with your mobility tax provider and other strategic mobility vendors. The landscape of global mobility continues to evolve, presenting both challenges and opportunities for organizations and their mobile employees. Regular reviews and updates of your mobility policies will help you stay ahead of changing tax laws, emerging work trends, and evolving business needs.

As always, we invite you to schedule a call with our team to discuss your specific situation and address any additional questions you may have. Our expertise in mobility tax can help you navigate the complexities of global assignments, remote work arrangements, and changing tax landscapes, ensuring that your mobility program remains compliant, cost-effective, and supportive of your overall business strategy.