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Tips for a Post-Tax Season Review of your Mobility Program

    

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Now that the chaos 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 areas of frustration so you can strategize possible improvements. To guide you through this review, we’ve created a checklist that includes key considerations and tips for a successful and rewarding post-tax season assessment.

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 outline 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 policies and processes and to make sure your organization understands the risks and requirements for new locations or scenarios. The bottom line is that your mobility tax provider is there to walk you through your questions and provide the technical and practical guidance needed to set your program up for success.

Finally, in this review meeting, make sure you discuss your tax equalization policy, timing to recalculate hypothetical tax withholding for current tax rates, and ways to mitigate large tax equalization settlements.

Draft next year's mobile employee authorization list

Do you ever feel overwhelmed at the start of tax season because you’re scrambling to compile your mobile employee authorization list? One tip—start right when the current tax season ends! Use your current authorization list, identify mobile employees who you know will no longer need to be on the list, and continue to add new mobile employees as the year progresses. By the end of the year, you should only need to complete a quick review of the authorization list.

And don’t forget about 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 for the company. Make sure you discuss these employees with your mobility tax provider so they can help you determine what steps you need to take to ensure the company and employee remain compliant.

Identify delinquent taxpayers and follow up with them

In the “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 non-compliers drift as they may cause big headaches down the road, including additional tax, penalties and interest, increased tax return compliance costs, and collection issues for tax equalization settlements.

Identify taxpayers who may need long-term extensions

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”).

Know who these mobile employees are and why their returns are extended. Also, make sure these individuals have received necessary communications, so the right 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 the necessary adjustments to your processes 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 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 being included in the tax cost estimates? For example, are you including anticipated bonus, equity, or deferred compensation in the projections? These amounts can be significant and can easily “break the 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 your tax provider 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.

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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 will allow 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 didn't will help you as you look to next year's process. Have a discussion with your mobility tax provider and express your needs. Let them know what could help you in the year ahead. By taking time now for a post-tax busy season review, you can make next year’s season less “taxing” for your team and mobile employees.

Mobility tax specialists

Author Raj Azad

 
Raj has over 20 years of experience in expatriate tax, and joined GTN in 2004. He currently serves as Director. In addition to consulting with companies on their mobility tax questions, he partners with his clients to find the right solutions and to define the proper policies that work best for them and their mobile employees. +1.763.746.4557 | razad@gtn.com
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