For the purposes of this article, we have assumed there is a US payroll reporting requirement (i.e. either the home or host location is in the United States.)
When to Start?
We recommend performing the compensation collection and reporting process throughout the year so that off-payroll taxable assignment allowances and benefits are reported to payroll on a real-time basis. Many non US locations require a shadow payroll to report regular payroll and off-payroll taxable allowances and benefits as they are paid. For this reason, it is necessary to check the payroll reporting requirements in the various non US locations at the start of an assignment.
October is an ideal time to start planning for the collection of any remaining off-payroll items and to map out the report to payroll timing for both the home and host country payrolls. A thorough review should be performed of the full calendar year and fiscal year in both home and host country reporting combinations to ensure that all taxable items have been collected, coded for taxability, and reviewed for applicable tax gross-ups in accordance with the company's relocation policies.
Planning Steps:
- Identify a team leader: one party or person who will lead and be responsible for the overall process.
- Prepare a well-documented timetable with the input of all parties who will be involved in the year-end compensation collection and reporting process:
- Obtain a date when the payroll department requires the final year-end payroll adjustments for W-2 reporting purposes. Then, work backwards from this date in establishing the due dates for other process steps (see below.)
- Identify due dates of the foreign tax returns, as the cases can be ordered based on the timing of the reporting requirements in the host country locations. Tax return due dates can be identified by the company's tax department or the Tax Services Vendor.
- Plan the time requirement accordingly and budget for external support. The time commitment for all parties involved in the process, and especially for the team leader, will be extensive.
- Know where to easily access assignment letters or employee relocation packages in order to reconcile what has already been reported to payroll versus what still needs to be collected, reviewed and reported to payroll.
- Obtain a relocation/assignment benefits taxability grid from the Relocation Provider and/or Tax Services Provider in order to determine and cross-check all taxable items.
- Obtain a copy of the company's relocation policy in order to be aware of the relocation and assignment benefits and corresponding tax gross-up requirements.
- Know in advance the parties involved in the process, including:
- Accounts Payable in the home AND host locations, if applicable (know who to contact in all overseas locations)
- Relocation Management Vendor
- Tax Services Vendor
- Payroll Team
- Expense Management Team (whether Internal or Third Party)
- Equity Awards Team
- Check with the payroll department to ensure that the department can provide the detailed break-out of Form W-2 Box 1 Federal Wages and Form W-2 Box 16 State Taxable Wages. The Tax Services Provider will request these details, so it's best to be prepared for this request in advance. Also, verify with your Tax Services Provider other reporting requirements surrounding areas such as employer match of 401(k) or other miscellaneous reportable data.
- Review the timeline from the prior year and discuss any issues encountered so that the current year process can be improved.
- Obtain a list of employees for whom reporting is required in advance, if possible. The following information for each employee may be considered as reporting requirements, depending on circumstances:
- Employee Visa Type (if non-immigrant)
- If J1 or F1 Visa Holder, original date of issuance
- If US Green Card Holder, date of issuance
- Residency State
- If working outside of the residency state, the number of work days in each non-resident state(s). If unknown, Tax Services Provider may assist with obtaining travel data from employees.
- If working outside of the US, number of days worked in each country. If unknown, Tax Services Provider may assist with obtaining travel data from employees.
- Obtain all business expense details by assignee, since many times the reimbursements may be taxable in the host country. Check with the Tax Services Provider if this data will be required.
- Have assignees complete travel and workday schedule for the year. This information is often vital for determining state source income or determining eligibility to treat business travel expenses as non-taxable.
Tips:
- Schedule regular meetings to stay on top of the process.
- Document issues while moving along in the process, as this can be very helpful for next year's improvement planning.
- Stick to due dates.
- Document the process and participants, and track the progress.
- Know that home and host country reporting may differ. It's better to collect 100% of the data even though it may not be taxable in the home country as it could be taxable in the host country.
- Develop a process and tools to assist in the collection and reporting process. If you need support with the year-end compensation collection process and tools please contact Stephen Daas at sdaas@gtn.com.
- Be patient, as this is a big endeavor!
If you have any questions please feel free to contact us at help@gtn.com
The information provided is for general guidance only, and should not be utilized in lieu of obtaining professional advice.
Author: Steve Daas
As a former partner in one of the Big 4 accounting firms, Steve saw the entreprenaurial spirit at GTN, joining them in October 2005. Steve became Chief Operating Officer in 2008, and in 2018, his role and title transitioned to Partner, Global Client Experience. In this role, Steve focuses his commitment to the firm’s promise of being the trusted partner and resource for their clients.
sdaas@gtn.com | +1.763.390.4931