Tag: Mobile Workforce

The CARES Act and Your Mobility Program

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With the signing of the Coronavirus Aid, Relief, and Economic Security (CARES) Act by President Trump, millions of Americans are looking forward to receiving their stimulus checks. However, will your relocated employees actually receive one? The stimulus checks are to be delivered to individuals who meet certain income conditions and is phased-out for individuals over certain thresholds.

What We Know

The CARES Act provides eligible individuals with an advance refund check equal to $1,200 ($2,400 for joint filers) plus $500 per qualifying child. If adjusted gross income (AGI) exceeds $75,000 ($150,000 for joint filers), the advance refund check is reduced until it is completely phased-out for those with AGI of $99,000 ($198,000 for joint filers). An individual’s most recently filed return will determine eligibility for receiving the advance payment. In most cases, this will be the 2018 tax return, although for some it will be their 2019 tax return (if it has been filed and processed by the IRS).

The advance refund check is being provided in anticipation of an individual’s qualification for the related tax credit on his or her 2020 tax return. If an individual does not qualify for an advance payment due to the income level on their 2018 return (or 2019 return), but otherwise would qualify based on their 2020 income level, the credit will be applied on their 2020 tax return against their 2020 tax liability.

It should be noted that if an individual receives an advance refund check but whose 2020 income is higher than the thresholds, the advance would be forgiven and not need to be repaid. Therefore, relocations or assignments starting in 2020 should generally not impact an individual’s ability to benefit from the stimulus.

Impact to Your Mobile Population

For your employees who were relocated in or were on assignment during 2018 (or 2019) and had all of their relocation costs and assignment allowances included in their 2018 or 2019 Form W-2, their income was inflated for the year (compared to their “stay at home” income – any compensation they would have received had they not been relocated). As a result, these individuals are likely to receive a reduced advance refund check or possibly no advance refund check and will have to wait to file their 2020 tax return to see if they qualify for any additional amount. If their 2020 reportable income is higher than it would have been in 2018 or 2019, then the loss of the benefit related to the stimulus payment will be a permanent loss to the individual.

For example, consider a married employee with two qualifying dependent children, a base salary of $100,000, and bonus of $50,000 in tax year 2018. The individual moved from the U.S. to France during the year and had total relocation costs and allowances imputed into his or her W-2 of $75,000. Assuming his or her spouse is not employed and is not considering other personal income, this individual has reportable income for the year of $225,000. At this level of income, the individual is not eligible to receive an advance refund check, since income is above the $198,000 threshold for joint filers. However, if they had not been on assignment in 2018, income of only $150,000 would have been reported on the 2018 tax return. As a result, the individual would be eligible to receive an advance refund credit check of $3,400 ($2,400 for joint filers plus $500 for each qualifying dependent child).

The situation becomes even more complex for any inbound employees to the U.S. The CARES Act states that for an individual to be eligible for the advance payment refund check, they must have a valid identification number. In this instance, a valid identification number includes a Social Security Number, but does not include an Individual Taxpayer Identification Number (ITIN). It is a very common situation for inbound families where only the actual working spouse has a Social Security Number while the non-working spouse and children would have ITINs while the family is in the U.S. under temporary visas.

Company Considerations Since this stimulus payment is, in effect, an advance payment of a tax credit, a company must consider the cost impact to their mobile employee programs (domestic and/or international) like any other tax law change. Based on previous stimulus events and related reactions, it is likely that this stimulus event will create an increased cost to the company. In determining the effect to any impacted employee, the company should consider whether to wait until all information is known (i.e. upon filing of the 2020 tax return and related tax settlement calculation) or whether to review the mobility program population now.

If a company is waiting until the 2020 return is completed, special consideration should be made for employees who were involved in an active relocation or assignment in 2018 or 2019 but are not anticipated to be included on the company’s tax authorization list for 2020 tax return preparation.

Tax and Relocation Implications For The Mobile Workforce

Posted on by info

The novel coronavirus that causes the disease COVID-19 has become a global issue. Since the virus was declared a pandemic by the World Health Organization (WHO), we have seen more border entry restrictions, quarantines and travel bans implemented to stop the virus’ spread. The evolving situation has made managing a mobile workforce more challenging.

Managing Mobile Talent 

As the global pandemic accelerates worldwide, so does anxiety among mobile employees and their families who are “away” from home – on assignment, recently relocated or repatriating. While recommendations depend on the stage of the assignment or relocation and local situations (e.g., mandatory shelter in place, etc.), these observations can inform decisions you may be struggling with.

Pause/Fast Forward Button
In the face of travel restrictions and shelter in place orders, an increasing number of our clients (41%) are deferring new initiations. The situation is very fluid, but many have cited a three-week pause. Mercer research indicates 32% of companies have implemented hiring freezes and as a result, new hire initiations will be the first to decrease. Further, many intern programs are on hold. That said, there are also companies that are rapidly ramping up and reorganizing, pushing the fast-forward button but with intense concern over long term costs.

(Stealth) Repatriations
Among our client base, repatriations have been limited (11%) as travel bans and quarantines have made it more difficult to mobilize returns or find a safe haven. Stealth repatriations seem to be spiking, creating significant permanent establishment (PE) issues and challenges tracking and staying in touch with employees. Global mobility may be the last to learn of stealth repatriations, when the employee or manager surfaces compensation issues or questions about expenses, which obviously creates more tax and compliance risks now and down-stream.

Managing Mobility
New Initiations
Moves that are essential or critical are proceeding with the understanding that services may vary based on local regulations (i.e., virtual inventory of household goods (HHG), “drive by” valuation, virtual destination tour, etc.).

Moves In-Process

  • Moves in-process are continuing on a case-by-case basis depending on the stage of the move and local restrictions. Keeping costly home sales together to control costs, delivering household goods where and if permitted, funding “quarantine expenses” and covering extended temporary living and storage, etc.
  • Assignees may get a “hardship” allowance or a “shelter in place” per diem.

Destination In-Process
Using virtual solutions, home finding in some locations is continuing. A comprehensive phone-based needs assessment allows the counselor to collect and curate listings/information.

Exceptions
Managing an increasing number and variety of exceptions is creating an incredible burden on global mobility, but with tax, visa and business/budget implications it will be vital to detail circumstances for all future reporting and analysis.

Managing the Tax Implications

We continue to closely monitor the tax landscape for global mobility programs and have identified unanticipated compliance risks for expats as a result of this global pandemic. Global mobility program managers should consider whether these risks apply to their expats and whether prudent action is needed to minimize the exposure created.

  • Shadow Payroll Reporting: Companies are repatriating their expats temporarily to address challenges in the host jurisdiction with the virus. In doing so, this may have an impact on the shadow payroll reporting in the host jurisdiction; we recommend that you review the shadow payroll calculations and modify the level of income reported and income and social tax withholdings to account for the absence.
  • Hypothetical Tax Withholding: If an expat is repatriated temporarily to his or her home country and is tax equalized and deducting a hypothetical tax, it may be prudent to suspend his or her hypothetical tax withholding and switch back to actual income tax (and potentially social tax) withholdings.
  • State Tax Residency: For U.S. outbound expats, repatriating back to the U.S. temporarily may create a tax residency issue in their state of residence. This may require turning on actual state tax withholding or addressing a potential underfunding of state tax withholdings from previous pay periods when the intent had been to break state tax residency.
  • Permanent Establishment Risk: When the initial reporting on the virus broke, several expats were relocated to a neighboring country or another country in the region instead of their home country with the expectation of a short timeframe and which allowed the expat to continue to work from the same region. This creates the potential for corporate tax exposure in that country. We recommend that you review such expats’ job responsibilities and assess the exposure with your corporate tax department.
  • Income Tax Treaty Relief: Many expats are currently quarantined in their host country and are unable to repatriate back to their home country or even a neighboring country due to travel restrictions. These travel restrictions could lead to short term expatriates exceeding the 183-day threshold prevalent in many income tax treaties. This could give rise unexpectedly to tax residency and income taxation in the host country. You should closely monitor the anticipated day counts in the host country and identify any employees that are close to exceeding the 183-day threshold.
  • Unbudgeted Tax Costs: Incremental costs to evacuate employees and their families and house them temporarily while they are unable to work in their assignment country could be a taxable benefit in kind. Company policies should be reviewed to determine if these costs are tax protected and budgets and accruals should be reviewed to account for these added costs.
  • Tax Filing and Tax Payment Deadlines Extended: Several countries have already announced extended filing and payment deadlines, including the U.S., Canada, and Japan. This will impact the timing of tax filings, tax equalization settlements, and home and host country tax payments. Companies should monitor these updated deadlines to manage cash flows optimally and inform their business leaders accordingly.
  • Foreign Earned Income Exclusion: If a temporary repatriation jeopardizes a U.S. outbound expat’s ability to meet the bona fide residence or physical presence tests to qualify for the foreign earned income exclusion, the foreign tax credit is usually a viable fallback position to minimize potential double taxation provided taxes are being paid in the host country. For U.S. state tax purposes, if the state does not allow a credit for foreign taxes paid, there could be an unexpected increase in actual state tax costs.