A mobile employee is any employee who works in more than one tax jurisdiction – within the U.S. or internationally – between the granting of an equity award and the time the equity award is taxable under local law.
Why are taxes for mobile employees so complicated?
The host country, state or locality where the mobile employee has worked in the past may have the right to tax the income from equity awards based on how much time the employee spent there.
The sophistication of tax authorities in certain jurisdictions is increasing significantly. A heightened focus on the taxation of equity compensation for mobile employees has the potential to generate audits for your company and your employees, causing high exposure to penalties and employee dissatisfaction.
What are the important things I should consider and communicate as they relate to mobile employees?
- Employees may end up paying taxes in multiple locations. It is critical that you let your employees know that as they move from one tax jurisdiction to another, each dominion may have the right to tax employees on the income for the equity award.
- Trailing tax liability. Employees may owe taxes in a jurisdiction where they no longer live or work.
- Tax equalization. Will your company make an agreement with employees that they will pay no more tax than they would have paid had they remained in their home location? What components of the employees assignment will be tax equalized?
- Payment of taxes in host location. Will employees be responsible for paying their own taxes in the host location?
- Preparation of taxes. Will you offer employees assistance with tax return preparation?
What are some best practices when communicating about taxes to mobile employees?
- Communicate up front, preferably during the planning stages of an assignment. Set expectations up front to avoid confusion and conflict at a later date. Consider including a tax advisor in the conversation, and have a matrix of tax implications and actual examples available during the discussion.
- Communicate frequently. At a minimum, you should communicate with your mobile employees at the time of relocation and at the grant, vest and exercise dates. Include important tax information in the grant notice and agreement. Remind employees that they should fully understand their unique situation and how it may impact their trade at the time of exercise.
- Understand your tools. Take full advantage of the resources you have available to communicate to your employees. In-person meetings are most effective when feasible, but also reinforce and deliver messages on your equity administration websites on your grant notices and transaction advices.
- Lean on your vendors, consultants and service providers. Partnering with your administration vendor can help automate communications and provide real-time access to potential tax scenarios.
Taxes for mobile employees can be overwhelming, for you and your employees. But with proper planning and clear, frequent communications, you and your employees can avoid unnecessary complications. Sheila Frierson, CEP, oversees employee stock plan services relationship managers in multiple Computershare offices across the nation.