Year-end tax planning can be hectic for any organization, and that’s especially true for those whose work involves relocation or global mobility.

Employment statuses change frequently throughout the year, and of course, reporting requirements change along with them. Often, people fall off the radar for tax-reporting purposes when they change geographical location; or they may switch to a different payroll system within the same company, with different paymaster rules coming into play. That means finance departments have the task of communicating clearly with an ever-evolving variety of outside parties.

In our experience working with clients that have a globally mobile workforce, we have found that there are two keys to mitigating financial risk and eliminating surprises in year-end tax planning. The first is to properly identify all stakeholders. The second is to question your assumptions.

Who are the stakeholders?
Because global mobility is so complex, it’s important to make a list of all stakeholders concerned in the year-end tax planning process. This list will include, but is not necessarily limited to:

  • A company’s internal mobility, HR, corporate tax, payroll, accounts payable and finance teams; and
  • External sources such as payroll vendors, payroll tax advisors, relocation providers, tax providers and expense processors.

Ideally, your team has been in contact with each of the relevant people throughout the year, but at year-end it’s especially important that communication be clear and regular.
Each stakeholder has to be advised (and regularly reminded) of certain key dates in the year-end process:

  • Cutoff date for payroll reporting (usually near the end of November): We have found it useful to pick a date that is consistent year to year, such as November 30th, since it’s easy to remember. However, it is ultimately up to the company to choose this date based on their internal year-end calendar and processes.
  • Cutoff date for expense reimbursement: Will the company allow you to reimburse expenses in the current year even after the cutoff date, or should you hold those payments until January?
  • Final update and review date (usually around mid-December): Payroll updates for relocation are often sent periodically throughout the year, usually monthly or quarterly. After the company has recorded the final payroll update, reconciliation should be done to confirm that all parties’ final numbers for relocation earnings during that tax year are in agreement. The failure to double-check previous updates is common, and can lead to major errors in W-2s.
  • RTR (Relocation Tax Reports) date (January): Advise the company when you will be sending transferees data that summarizes what was reported on the W-2 form for relocation-related activity.

What are your assumptions?
Again due to the complexity of global mobility, year-end tax planners are wise to question the assumptions they make related to reporting. Here are a few of the areas that we have found to be especially problematic:

  • LTIAs (Long-Term International Assignments): This group of employees has to be properly segregated. Have they been correctly identified by assignment type, e.g., short-term assignment, Canadian move, multiple moves? What individual gross-up arrangements have been made? Before updates are made to payroll records for LTIA employees, tax planners should go through and confirm, in each case, what they’ve assumed about employment status and reporting.
  • Spending and budget caps: Many companies have defined spending caps in their relocation budgets. However, if a company has 100 transferees and seven different departments charged with reporting on them, spending caps can get overlooked, leading to difficult year-end meetings with HR.
  • Non-US payroll: When an employee leaves a US system, he or she is often “out of sight, out of mind” when it comes to reporting wages and expenses. For example, an employee transferred to Germany may be having German taxes withheld by that division’s payroll provider, while nothing is done to address US taxes. Not only does this wreak havoc with a company’s internal data, it presents big problems for an employee when it comes to filing his or her tax return. Reporting requirements will vary depending on the countries touched during the assignment or relocation, so it is critical to ensure a compliant process is in place through a tax provider with knowledge of the specific laws in those locations.
  • Terminations: If an employee left and his contract obligated him to repay relocation expenses, did he do that—and was the transaction captured so that reporting numbers match? It is important for all parties involved, such as the company’s AP and payroll teams and the relocation management company, to be made aware of any situation where a repayment was made.

In many ways, it’s not the minutiae of calculations that cause problems in the year-end tax-planning crunch—it’s the failure to step back and look at the larger picture. Tax planners can save themselves time and headaches by remembering to ask themselves two basic questions: Who are our stakeholders? What are our assumptions?

About the authors: Brian Vitello, CPA, is COO of Ineo Financial Solutions, a strategic partner for companies seeking comprehensive, professional and seamless back-office financial services for their mobility programs. Kevin Clark, CPA, CRP, is Director, Financial Solutions, at Ineo.


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