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US year end planning, Part Two: Year end Assignee US compensation reporting for Employers

December 2019

In 2018 and 2019, many employers and their assignees have been grappling with the impact of the Tax Cuts and Jobs Act, the largest overhaul of the US tax code in 30 years, signed into law by President Trump on 22 December 2017.  As the end of 2019 approaches, many employers will be looking at the 2019 US tax position of their assignees and their compensation reporting requirements to assess any actions they should consider taking before 31 December 2019.

In this note, we take a look at actions that employers should consider prior to the end of the calendar year in terms of accurate assignment compensation reporting..

For employers, it is important that all elements of assignment compensation and benefits are reported for US payroll purposes. This article sets out these aspects in more detail below.

In addition to the below, employers of tax equalised assignees may wish to settle any anticipated overseas tax liabilities of their assignees before the end of 2019 to ensure that the US foreign tax credit position of their assignees is optimised. More detail on this is explained in our other article here.

Employer year-end reporting

As the year end approaches many employers will be reviewing the US payroll reporting aspects for their assignees. Under US compensation reporting rules, all compensation and benefits must be reported on the year-end compensation reporting statement W-2, which must generally match with the earnings reported on each individuals US income tax return. This exercise has two groups of assignees:

  •     US employees who are on assignment overseas
  •     Foreign employees on assignment in the US

Commonly US assignees overseas are provided with relocation and other assignment related benefits such as accommodation and school fees. These may be arranged locally but it is important that such benefits are reported in the W-2 to ensure any US taxes and social security payments are accounted for.

In addition to the reporting of benefits, any payment of foreign taxes and social security by the employer, on behalf of tax equalised assignees for example, should be similarly reported.  As the W-2s need to be finalised before the end of January following the end of the calendar year, US employers should be gathering such information to make appropriate adjustments in advance of the deadline.

Foreign assignees to the US are typically paid in their home country and all compensation liable to US taxes need to be reported in the year end compensation form W-2. Many US host employers operate a shadow payroll to ensure there are compliant with their US Federal and State withholding obligations. An exercise should be undertaken towards the end of the calendar year to ensure all compensation items have been reported accurately in the W-2.

Next steps

Employers should be undertaking a year-end review to ensure that all US payroll reporting is complete and correct for their assignees to avoid the need for filing W-2Cs in 2020 and avoid a shortfall in US withholding taxes.

How can we help

Abbiss Cadres has the expertise to support you and your assignees with these aspects. Please contact Matthew Fox or call +44(0)203 051 5711