Self-Service Policies Re-Emerge: An Assignee Can Be Their Own Travel Agent
The Rise of Travel Apps and Global Mobility
How can the rise of travel apps affect global mobility? Consider that in 2017 travel apps topped 175 billion downloads producing revenue above $86 billion according to TechCrunch. A fundamental reason for this rise is that apps are designed to make it easy for us to be our own travel agents with a few taps on our phones. We can book flights with any airline we wish, along with accommodations and local transportation for any trip to practically any global destination. With the rise of innovative solutions such as Uber, Airbnb and budget airlines many more destinations are accessible to the vacationing app user looking for a fast and cheap solution. Could these apps work as well for the mobile workforce?
New Willingness to Take Control of Moves
An assignee might choose and arrange their own travel and accommodation with just the immigration components being handled by the company sending them on assignment. The assignee may be free to opt for lower cost solutions such as Airbnb for temporary accommodation, budget airlines and budget long term accommodation. This may seem to work out well for the assignee who is trying to maximise the financial benefit of a policy that offers a lump sum payment. Or they might think it will allow them to repeat the experience they enjoyed on a previous rustic short vacation. In fact, the assignee is not there on a vacation and the ‘basic’ accommodation that suited a weekend away will not be practical for a longer stay when they need to be focused on work.
Key Difference Between Vacation Travel and Moving for an Assignment
There is a key difference between vacation travel on a budget and traveling to another country for work: when moving for work an assignee is not moving for their sole benefit – they are also moving to benefit the business. Further, the business is paying for this and has multiple interests to consider, most significantly risk. Issues often arise when the assignee has total control over travel decisions, such as if the assignee winds up in an accommodation in a dangerous area of a city, and those issues can put the assignment at risk.
While expense management is not inconsequential, it’s more important to minimize the risks of a failed assignment, as failed assignments are extremely costly. The more mature self-managed polices will have guidance and advice on recommended services to help reduce such exposures, enabling the assignee to maintain some control while simultaneously helping the assignee and the business avoid a situation that could be detrimental to them both.
Tax Issues: An American Abroad
Assignees inevitably face unanticipated issues on assignment. One of the most notable is the complexity of managing tax responsibilities. US citizens must file US tax returns wherever they are in the world. However, while a US citizen is required to file a US federal (and possibly state and local municipality) return that doesn’t necessarily mean they will be paying US taxes. There are two significant benefits in the US tax law which may be applied to the US expatriates home country tax return: the Foreign Earned Income and Foreign Housing Exclusions and/or, Foreign Tax Credits. Utilization of these two sections of US federal tax law can substantially reduce the expatriate’s home country tax liability – possibly down to zero.
To make matters even more complex, not all states follow federal rules in these matters and it is essential to understand the rules of the expatriate’s home state to remain compliant.
As a result of the US Tax Cuts and Jobs Act of 2017, current federal tax laws have made basically all reimbursed moving expenses taxable to the employee. As a result, most companies provide a corresponding tax “gross-up” to accommodate for the payment of tax-on-tax on the expatriate’s behalf. Once again, not all states follow the federal rules and the expatriate may indeed have a state moving expense deduction available to them.
Help is at Hand
The rise of travel apps has made it possible for an assignee to manage their own relocation related travel and lodging. But is this the best course of action? The US tax filing implications alone for an assignee can be confusing and overwhelming and can easily cause financial and compliance issues.
Having a tax mitigation and compliance solution and the backing of mobility tax experts is essential. Among the best practices for minimizing financial and compliance risks are:
- Utilize pre-move tax consultations for both expatriates from the US and inpatriates into the US to discuss and plan for the US tax implications when moving from/to the US
- Engage a global mobility tax preparer that specializes in US income tax returns for both expatriates from and inpatriates to the US
- Coordinate with mobility tax service providers who prepare required non-US income tax returns
- Utilize tax calculation tools such as cost estimates, hypothetical tax calculations and tax equalization reconciliations – maintained to keep up with global tax law changes – to anticipate obligations by both the employer and employee
Together these practices will allow the assignee to take advantage of travel apps while simultaneously reducing risks to both the employer and employee.
To learn more about the tax challenges an assignee can experience and how they can be solved, or the technology solutions available to mobility professionals to help improve both the assignee experience and overall program effectiveness, see https://www.ineomobility.com or contact Andy Smailes via email firstname.lastname@example.org.
Tax issues and solutions contribution: Michael J. Gatto, MBA, CPA, Manager, Global Mobility, Ineo LLC, www.ineomobility.com
About the Author
Andy Smailes is Ineo’s Director, Global Business Development. His extensive experience in the mobility industry has been focused on the implementation of technology and events. At Ineo, he is responsible for nurturing and developing new and existing client relationships in the European market as well as around the globe.