Where-has-the-year-gonebrReporting-YearEnd-Compensation-Collection

Where has the year gone?
Reporting year-end compensation collection.

“Is it October already?? Where has the year gone?” This is a question that many Global Mobility, HR and Payroll professionals ask themselves as they anticipate the upcoming year-end payroll close.

October tends to be the time when many companies begin their global compensation collection and reconciliation process to allow for any final payments and gross-ups to be made prior to the December 31st cutoff. Generally, all payments and withholdings should occur within the calendar year to be properly reported on the employee’s annual U.S. Form W-2 Wage and Tax Statement.

Collecting and reporting the correct taxable remuneration, especially for short and long term international assignees, can be confusing and downright frustrating at times. To add to the difficulty, you may have to capture salary, bonuses, equity compensation, benefits and/or benefits-in-kind paid directly to or on behalf of the assignee from both the US and non-US entities! As much as you love your job and your colleagues, you should be enjoying all of those fourth quarter holidays with your families, not compiling year-end compensation. Whether your compensation collection process is in-house or manual, the list below can serve as a quick reminder of a few standard items that should be included on your assignee’s annual W-2.

Standard/Typical Compensation Items:

  • 401(k) Employee Contributions
  • Base Wages
  • Bonus / Commissions
  • Equity Compensation
  • Excess Life Insurance
  • Group Term Life (GTL)
  • Medical / Dental / Vision Benefits

Assignment Related Allowances/Benefits:

  • Automobile Allowance
  • Cost of Living Allowance (COLA)
  • Education Allowance
  • Foreign Pension Employer Contributions
  • Foreign Service Premium
  • Hardship Allowance
  • Home Leave
  • Host Country Housing (Including Rent and Utilities)
  • Relocation Allowances and Taxable Moving Expenses
  • Temporary Living and House Hunting Trip

Assignment Related Tax Benefits:

  • Hypothetical Tax Deduction
  • Imputed Value of Tax Preparation Services
  • Non-US Income and Social Taxes (including Gross Up)
  • Tax Equalization Settlement Payment
  • US Federal, State and Local Tax Extension Payments
  • US Federal, State, Local, and FICA Tax Gross Up

Generally, under US tax laws and regulations all cash and non-cash remuneration is subject to tax for US tax residents. Therefore, all remuneration paid to your US taxable assignees should be captured in the W-2 and subject to appropriate tax withholdings. There are certain exceptions that may apply; additionally, compensation reporting requirements for short-term assignments may differ from long-term assignments. You may want to consult with your tax provider to determine the appropriate treatment and reporting requirements. Getting it right the first time can avoid unnecessary and costly circumstances, including but not limited to:
  • Minimize employer payroll reporting and withholding penalties and interest for noncompliance.
  • Minimize employer and/or employee exposure related to underpayment of Social Security, Medicare, and federal and state Unemployment taxes on the foreign assignment related allowances and benefits.
  • Minimize employee’s exposure for underpayment of federal, state and local income tax withholding and avoiding interest and penalties on a balance due with employee’s tax return.
  • Avoid having to prepare Corrected W-2’s (W-2C’s) and employer withholding returns after the company’s books have closed.

What about next year?

Your annual year-end compensation reporting and collection process is also a great time to plan for the upcoming year. Review your assignee’s withholding Form W-4, Form 673 (if applicable), Certificate of Coverage and hypothetical tax deductions. This will ensure you start off the new year right with the proper documentation and appropriate withholdings in place for your assignees, instead of back tracking mid-year. Consistency for your assignee will lead to a pleasant assignment experience. Work with your relocation management company and tax provider to ensure that your budgets and accruals reflect the assignee’s current situation, compensation and benefits accordingly. Planning ahead will relieve additional work and worries for your team at the end of the year!
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