This is a guest post by Kynsie Rife, Senior Tax Associate for Global Mobility Tax, LLP. Connect with Kynsie!
The 2018 tax reform sparked conversation regarding its effect on a variety of industries, especially global mobility. With the commencement of a new tax season, tax returns will be filed, and tax equalization settlements calculated. As this happens, the impact of the tax reform is becoming clearer. We have partnered with Global Mobility Tax to provide additional insight and this update.
How are the tax reform changes affecting your global talent and your company? Every company dealing with global mobility and domestic household goods moves should be aware of the following:
1. Moving expenses paid by the company are now taxable to the assignee.
Anyone who is involved in sending talent abroad or going on an assignment understands it can become costly. Many moving expenses, such as flights or visa fees, that are paid for by the company are now taxable to the employee. Companies must take into consideration whether moving expenses should be grossed up during the cost projection of an assignment. If moving expenses are not grossed up, employees deciding to go on assignment may consider whether the assignment is worth the additional cost.
2. Check State Non-Conformity
Approximately 10 states have not, or have only partially, conformed to the federal tax law. This is changing as the year progresses and states continue to make final decisions on whether they will conform to the changes or not. You might be wondering what this means for you. Let us take the moving expenses example from point one. Federal law now taxes moving expenses, so the company decides to gross up the moving expenses to cover additional taxes, both federal and the assignees’ home state. If the state has not conformed to federal law and still considers moving expenses as not taxable, the assignee received additional gross-up income that was unnecessary.
3. Gross-up Methodology
Assignees and employers will start to see the results of the tax gross-up methodology as employees file their 2018 tax returns. If individuals receive a large refund, it may be because the foreign benefits were over grossed up due to the lower tax rates from the reform. Companies will have greater visual of the talent who have been over grossed up if they are tax equalized. But, it is unlikely that employees who are not tax equalized will come into your office to let you know about the refund or benefit they received from foreign benefits being over grossed up for 2018. On the other end, you may have assignees who have been under grossed up which has resulted in owing the IRS more than originally anticipated. They may or may not come to you because they feel frustrated that their situation did not turn out as expected.
Over the last year, we have gained greater insight into the impact of the tax reform. Given these scenarios, employers need to consider revisions of new tax costs, gross-up amounts and tax equalization policies. Let us help you fine tune your program to put you ahead of the curve for 2019 and properly cover the new tax landscape affecting both your company and your employees.
Global Mobility Tax, LLP is a CPA firm providing strategy, consulting, and individual tax services to organizations that relocate people internationally. They are headquartered in San Jose, California with offices throughout the United States. www.glomotax.com