Equity income is a key compensation component as organizations seek to attract, motivate, and retain talent. Stock options, restricted stock units, and other equity-based awards are designed to align employee interests with long-term business performance and are increasingly offered to a broad range of roles and geographies.
At the same time, the way (and where) employees work has changed. Remote and hybrid arrangements, short-term business travel, and cross-border assignments mean that equity awards are often no longer easily attributable to a single location. This creates employer and employee challenges.
For mobile employees, equity income can create complex tax, payroll, and reporting obligations that span multiple states and countries, often over several years between the grant, vest, and exercise.
This results in compliance risks for employers if mobility is not tracked and managed carefully. Reporting and withholding obligations may arise in jurisdictions where an employee worked months or years earlier, and issues often only arise when awards vest or are exercised. In many jurisdictions, tax authorities expect employers to have contemporaneous support for equity sourcing methodologies, increasing the importance of integrated mobility and equity tracking systems.
Understanding these risks is critical to preserving the value of an equity program and avoiding unexpected tax exposure, potential penalties, and employee dissatisfaction.
Below we outline income tax, legal, and regulatory considerations for companies providing equity income to mobile employees, with a focus on global and US compliance challenges. By understanding how mobility affects equity taxation and administration, employers can take a proactive approach to managing risk while supporting effective compensation strategies.
Income tax considerations
Mobile employees create unique global and domestic payroll challenges for employers when they are eligible for equity-based compensation. Equity awards often vest or are exercised over several years, during which time employees may work across several jurisdictions. As a result, employers may be required to report and withhold taxes in more than one jurisdiction for a single equity transaction.
From an employer perspective, payroll reporting obligations are impacted by:
- The employee’s tax residency status at the time of a taxable event (i.e., vest or exercise, and in limited cases grant depending on the award type and jurisdiction)
- The employee’s work locations during the period that the compensation was earned, as well as local sourcing rules, often determined by the proportion of workdays spent in each jurisdiction between the grant and the applicable vesting or exercise date, though methodologies vary by country
- Local withholding obligations
These requirements can create significant compliance risk if work locations are not tracked accurately or if payroll systems are not equipped to handle multi‑jurisdictional reporting and withholding. In many cases, reporting obligations arise in jurisdictions where the employee no longer works, increasing the likelihood of inaccurate reporting.
Similarly, the employee may be required to report income to the various jurisdictions in which they have worked on their annual income tax returns. Reporting may be based on residency status or the location of workdays during the earnings period for the equity award.
A misalignment between the employer payroll reporting and employee tax return filings can potentially result in tax notices, audits, penalties, and employee dissatisfaction. Clear processes and communication around income tax reporting and withholding responsibilities are essential to managing risk for both the employer and the employee.
Global tax considerations
Equity compensation plans are often designed based primarily on a single Home country tax framework. However, employee mobility can trigger tax, payroll, and reporting obligations for both employers and employees across multiple jurisdictions. Furthermore, US-based equity compensation plans often face inconsistent tax treatment in other countries, which can unintentionally reduce the incentive value of awards. Accordingly, it is critical for companies to take a global approach to managing equity programs and assessing how mobility impacts reporting, withholding, and compliance obligations worldwide.
Common global equity-related tax and payroll challenges include:
- Variations in reporting and withholding rules by country, award type, and corporate recharge processes
- Restrictions on payroll withholding for employees who have left a country, driven by local tax, labor, or administrative requirements
- The possible need to re-establish payroll or registration for former employees to address trailing equity reporting and withholding obligations
- Social security obligations that may apply in multiple jurisdictions, and the treatment of equity income for social security purposes may differ from income tax treatment
- Timing differences in recognizing taxable income across jurisdictions, which can affect treaty benefits and complicate payroll processes
- For example, US resident participants of an Israeli-based plan may have US reporting and withholding on an RSU vest transaction that is not a taxable event for Israeli tax purposes (where taxation may occur at the time of sale under certain tax-favored plan structures)
To manage these risks, employers should review their equity plans and assess how local tax, payroll, and social security rules apply to mobile participants on a country-by-country basis. Employee communications should clearly outline both employer and employee responsibilities for reporting and withholding, especially in cases where equity income may be taxable in multiple jurisdictions or subject to different timing rules.
US state tax considerations
Employee relocations or employees working across multiple states can create compliance burdens. Employers may need to report and withhold state individual income tax for the employee’s resident state and any nonresident state(s) where income is earned, depending on applicable state rules, reciprocity agreements, and sourcing requirements. This requires accurate tracking of tax residency and work locations.
Companies must understand both the technical state tax laws and the practical payroll implications. For example, many companies may have challenges with reporting income to multiple states and may need to evaluate whether payroll system enhancements are necessary to manage nonresident state reporting and withholding requirements.
For both global and US domestic tax purposes, employers should communicate their reporting and withholding practices to their company-sponsored mobility tax provider. It is also important to recognize that employer payroll obligations and employee income tax return reporting may not always be aligned. This can create potential mismatches between employer reporting and employee tax filings if mobility and work location data are not coordinated carefully. Communication can help minimize risk and avoid surprises for both employers and employees.
For example, New York presents significant challenges due to employer payroll reporting and complex nonresident sourcing rules, which require employees to track and report New York workdays on their nonresident New York tax returns.
Tax authorities have increased focus on high-income individuals with significant equity compensation, as their workdays in nonresident states may result in tax liabilities during the applicable sourcing or vesting period.
Additionally, continued legislative discussion around mobile workforce withholding (e.g., proposed federal simplification efforts) underscores how challenging current compliance is for employers under existing rules.
Mobility professionals should work closely with payroll and stock administration teams to:
- Identify mobile employees
- Obtain relevant workday details
- Determine the appropriate reporting and withholding obligations
- Coordinate with payroll to confirm processes for appropriate reporting and withholding
- Provide employees with transaction reporting and withholding details
- Clarify both employer and employee responsibilities, including any company tax reimbursement policies relating to the taxation of equity income
Legal ramifications
Companies should consult legal counsel if they have, or plan to have, global participants in their stock plans. Potential legal considerations include:
- Data privacy: Administering a global equity program involves collecting, using, and transferring personal employee data. Certain jurisdictions (e.g., under the EU General Data Protection Regulation) require a valid legal basis for processing, transparency to employees, and safeguards for cross-border data transfers. Regulator notification requirements are generally limited to specific circumstances such as data breaches or high-risk processing activities.
- Foreign exchange: Some countries impose currency exchange controls, filing requirements, or restrictions. For example, China generally requires foreign-listed companies to register or file their plans with the State Administration of Foreign Exchange (commonly referred to as SAFE) prior to granting equity awards to local participants, along with ongoing compliance and reporting obligations that have evolved in recent years.
- Labor/employment law: Employers should review local labor and employment regulations that may affect equity offerings, as awards may be treated as compensation or wages in certain jurisdictions, potentially impacting termination rights and severance obligations.
- Securities law: Offering equity to employees in other countries may require local securities filings, disclosures, or reliance on exemptions (including employee share plan exemptions), as requirements vary by jurisdiction.
The above is not an exhaustive list but provides a foundation for discussions with legal counsel.
Legislative landscape
As stock-based compensation grows in popularity, global authorities are increasingly focused on compliance. Withholding and reporting practices, especially for mobile employees, are under greater scrutiny, creating challenges for employers with global and multi-state workforces.
Recent legislative and regulatory developments reflect heightened scrutiny and growing complexity in employer withholding and reporting obligations for mobile employees.
- Authorities increasingly use employer‑reported compensation and payroll data (including equity-related reporting) to identify potential compliance gaps, increasing exposure where mobility is not properly tracked.
- The United Kingdom updated its PAYE and social security (NIC) guidance for globally mobile employees, generally requiring employers to apportion income and withholding based on where work is performed during the earnings period (rather than solely at the time of payment), including for deferred compensation such as equity awards.
- The Canada Revenue Agency has updated its administrative guidance for remote work arrangements, clarifying expectations for determining province of employment and payroll withholding, and requiring employers to analyze work location and employment attachment.
- The US and other jurisdictions continue to focus audit and enforcement efforts on proper reporting and withholding of cross-border and deferred compensation, including equity income earned across multiple jurisdictions.
These developments underscore the growing expectation that employers maintain accurate mobility tracking, payroll processes, and supporting data to ensure compliance across jurisdictions.
Taking a proactive approach to global equity compliance
It is important for companies to understand their obligations and collaborate with internal mobility, payroll, and stock teams, and external vendors to establish clear policies and processes for global equity programs. Proactively addressing these requirements helps manage risk, maintain compliance, and preserve the incentive value of equity awards while supporting compensation packages that attract, motivate, and retain top talent.
As workforce mobility continues to evolve, organizations should regularly review their equity processes, so that they remain compliant, scalable, and aligned with the business’s objectives. Managing equity compliance helps companies to manage risk while continuing to use equity compensation as an effective tool to attract, motivate, and retain top talent.
If your company needs support managing equity plans, our team is ready to help. Schedule a call to discuss your needs.
The information provided in this article is for general guidance only and should not be utilized in lieu of obtaining professional tax and/or legal advice.
