Reporting and Reconciling Year-End Compensation in the U.S.
As the end of the year gets closer, folks in Global Mobility, HR, and Payroll are gearing up for the annual payroll wrap-up. Every company does things a bit differently, but one thing is the same everywhere: all payments and taxes for the year need to show up correctly on the employee’s Form W-2.
As the end of the year gets closer, folks in Global Mobility, HR, and Payroll are gearing up for the annual payroll wrap-up. October is when most companies start putting their plans in place to check final payments and gross ups before year’s end. Every company does things a bit differently, but one thing is the same everywhere: all payments and taxes for the year need to show up correctly on the employee’s Form W-2.
Most relocation expenses inside the U.S. are taxed, except for certain home sale programs, which are protected from federal and social security taxes. Almost all states follow the federal rules about what’s taxable, but a few, like California, still let you exclude certain moving costs when it comes to state taxes.
For employees going on international assignment—whether short or long-term—handling all the different pay types can get complicated. Besides regular relocation costs, you need to keep track of salary, bonuses, stock options, benefits, and perks, whether they’re paid by your company in the U.S. or abroad.
The best way to stay on top of your U.S. domestic and global assignment programs are to collect pay data all year and do a final check before closing out payroll. Cornerstone can help your company make sure everything gets reported on time and according to your company’s rules.Year-End Reconciliation Checklist
No matter how you or your provider gather your pay info, whether you use a system or just spreadsheets, here’s a handy checklist of what should show up on employees’ W-2 forms at year-end.
Standard Pay Items:
- Base wages
- 401(k) contributions
- Bonuses/commissions
- Stock and equity pay
- Extra life insurance
- Group term life insurance
- Medical, dental, and vision benefits
Relocation and Repatriation Costs:
- Miscellaneous expense allowance
- Lump sum payments
- Shipping and storing household goods
- Home finding trips
- Temporary housing
- Final move costs
- Home purchase costs
- Direct reimbursement for home sale costs
- Canceling leases
- Property management fees
- Spouse or partner support
Assignment Allowances / Benefits:
- Transportation allowance or company car
- Cost of living allowance (COLA)
- Education reimbursements
- Foreign employer contributions
- Mobility premium
- Country (hardship) allowance
- Home leave and non-accompanying dependent travel
- Host country housing (rent and utilities)
- Relocation or repatriation allowance
Tax Benefits Related to Moving:
- Hypothetical tax deduction
- Value of tax prep services
- Non-U.S. income and social taxes (plus gross up)
- Tax equalization payments
- U.S. federal, state, and local tax payments/extensions
- Tax gross up for U.S. taxes and FICA
Why Year-End Reporting Matters
Keeping up with reporting and reconciliation means you’ll avoid headaches like:- Penalties and interest from missed tax withholding
- Owing extra taxes on international allowances or perks
- Missing out on withholding the right amounts for federal, state, and local taxes, which could mean more interest and penalties later
- Having to issue Corrected W-2s (W-2Cs) and redo payroll filings after the year closes
Looking Ahead
Year-end is also a good time to review your process and get ready for next year. Take a look at how things went and see if any changes are needed; if so, plan to start fresh in the new year to keep things simple. Double-check your global assignee paperwork, like Form W-4, Form 673, Certificates of Coverage, and hypothetical tax info, so you’re set up right from January 1. And don’t forget to work with your relocation and tax partners to keep things running smoothly. Setting a clear payroll calendar helps everyone know what to expect and planning ahead means less stress when the year ends!