Now that the intensity of another US tax busy season has passed, it’s an opportune time to reflect on your mobility program with a post-tax season check-up. Taking time now to review this past busy season will allow you and your mobility tax provider to discover ways to enhance the employee experience, highlight areas of risk and outline necessary actions, and understand any frustrations that occurred so you can strategize future improvements. To guide you through this review, we’ve created a checklist that includes key considerations and tips for a successful post-tax season review.
Set up a post-tax busy season review meeting
Set up a meeting with your mobility tax provider to review how busy season went, discuss any issues that arose, and determine next steps to keep things moving during the summer months. Agree on responsibilities, timelines, and best practices for implementation.
This is also a great time to discuss your goals and the future state of your mobility program. If you have a remote or hybrid workforce, discuss the best approach for creating policies and processes to help reduce your workload, manage organizational risks, and ensure a positive employee experience. If your organization has begun to increase its business travel or international assignments, it is a great time to revisit existing policies and processes to ensure your organization understands the risks and requirements for new locations or scenarios. Lean on your mobility tax provider to walk you through your questions and provide the technical and practical guidance needed to set your program up for success.
If applicable to your mobile population, make sure you discuss the latest trends surrounding your tax equalization policy, the most appropriate timing to recalculate hypothetical tax withholding for current tax rates, and possible ways to mitigate large tax equalization settlements.
Draft next year's mobile employee authorization list
Have you ever felt overwhelmed at the beginning of tax season because you were scrambling to complete your mobile employee authorization list? Here's a helpful tip: start updating the list immediately after the tax season ends! Review your current authorization list, remove any mobile employees who will no longer require authorization, and add new mobile employees throughout the year. This way, by the end of the year, you'll only need to conduct a quick review of the authorization list . And don’t forget to utilize your mobility tax provider and technology to simplify and automate the process.
It's important to also consider your remote or hybrid employees. If you have employees working remotely in a different tax jurisdiction than their Home location, they could be creating tax risks for themselves and the company. Be sure to consult with your mobility tax provider to determine the appropriate steps to ensure compliance for both the employee and the company.
Identify delinquent taxpayers and follow up with them
In your post-tax busy season review meeting, you and your tax provider should discuss any mobile employees that are behind in their tax return filing requirements. Now is a good time to follow up with these individuals. The sooner you reach out to them, the sooner they will get on board. Don't let delinquent taxpayers drift as they may cause big headaches down the road, including additional taxes, penalties and interest, increased tax return compliance costs, and collection issues for tax equalization settlements.
Identify taxpayers who may need long-term extensions
Each year, many US taxpayers living overseas need to file extensions to file their tax returns. There are several reasons for these extensions, ranging from foreign tax information not being readily available to needing sufficient time outside of the US to qualify for certain tax return elections (e.g., having your tax home outside the US for a full calendar year to qualify for the foreign earned income exclusion under the “bona fide residency test”).
It is important to identify and track mobile employees who have been extended or will need additional extensions. Also, make sure these individuals have received necessary communications from your tax provider, so the right timing expectations are set. Frequent communication with your taxpayers can help minimize tax-related friction and misunderstandings and ensure you are providing that exceptional employee experience your workforce expects and deserves.
Review and adjust compensation reporting
Did you have a proper year-end compensation review process or were you rushing to resolve W-2 corrections? Identify what went well in your compensation reporting process and what can be improved. Making necessary adjustments to your processes now will enable you to get your compensation reporting under control for the next filing season.
You will also want to pay close attention to bonus and equity payments paid to your mobile employees, especially those who are in their first or last year of assignment. Bonus and equity payments may create balances due if the necessary withholdings aren’t taken in the correct tax jurisdiction. Also, make sure repatriated assignees are completing Form W-4s correctly to implement actual tax withholdings.
Review your accrual process
Did your mobile employees have balances due on tax returns or tax equalization settlements that were more than expected? If you are experiencing these types of surprises, it may be time to revisit your budgeting and tax accrual process. Questions to consider include:
- Are you working with your mobility tax provider to complete tax cost projections at the beginning of an assignment and are you using this information to set up budgets and tax accruals?
- Do you update the accruals based on actual results and are these updates completed on a regular basis?
- Are appropriate compensation and assignment allowance considerations included in the tax cost estimates? For example, are you including anticipated bonus, equity, or deferred compensation in the projection? These amounts can be significant and can easily crush a budget if not accounted for in an appropriate and timely manner.
Review the balance due payment process
Did you receive payment requests on time from your tax provider? Did you have enough time to make these payments? Depending on your mobility tax provider, it could make sense to engage them to receive the funds and do the paperwork on your behalf. GTN, as an example, is in a unique position to offer this service to clients as we do not offer audit services. Most accounting firms who do offer audit services are unable to handle clients’ funds due to Sarbanes-Oxley regulations.
Make sure the processes and timelines you had previously set with your vendors are manageable. If they are not, make the necessary adjustments for next year, while the experience is still fresh in your memory.
Track tax reimbursement claims
Make sure to track your receivables from tax equalization calculations. Also, remember that any payments due back to the company may result in potential tax relief (i.e., "claim of right" doctrine) on the following year's tax return, which could be an additional tax savings to the company. In addition to any tax equalization settlement repayments, make sure to consider Host country tax refunds. Most tax policies will require these refunds to be returned to the company if the taxes that are generating the refunds were funded by the company. Don’t ignore these receivables!
Create a process for foreign tax credits
To address the possibility of double taxation, the US generally allows a foreign tax credit to offset US tax on income that is earned outside the US. The US will only allow a credit, however, up to the amount of US tax on the “foreign source” income. If the employee works in a location with a higher tax rate than the US, this may mean all the foreign tax paid is not 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. For this reason, it is often beneficial to keep tax equalized employees on the tax authorization list if they have foreign tax credit carryovers and may still have foreign source income (i.e., they received bonus or equity income that was all or partially earned while working outside the US or 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 in determining if there may be a benefit to ongoing tax preparation services to recover the credits.
Taking time now to identify what went well and what could be improved will help you as you look to next year's process. Have the follow-up discussion with your mobility tax provider now and express your needs. Let them know what could help you in the year ahead. Through successful planning, you can make next year’s season less “taxing” for your team and mobile employees.