Intl Compensation Summary

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Subject: Compensation Summary

The fact is everything paid to, for, or on behalf of a long term assignee must be included in the W-2. Unfortunately, there is no nice clean summary statement like this from the IRS but you can read more about gross taxable income here – Internal Revenue Code section 61 (a)(1)- Basically, IRC Section 61(a)(1) of the Internal Revenue Code provides that compensation for services (including fees, commissions, fringe benefits, and similar items) is includible in gross income.

As most know the short-term assignment is specifically excluded under IRC 162(a)(2) and the summary from the IRS below explains IRC 162 in plain language:

“Temporary” Travel Assignment Becomes “Indefinite”

If an assignment away from home at a single location is, initially, realistically expected to last one year or less, and then later it is realistically expected to last longer than one year, the assignment is considered temporary until the date the expectations change. At that time, the travel is considered “indefinite” and any travel reimbursements from this date on are taxable.

Example 1: Joan accepts a 6-month work assignment away from her tax home, intending to return to her tax home at the finish of the temporary assignment. The assignment lasts for 6 months and Joan returns to her regular job at her tax home. Joan’s reimbursements are excludable because the assignment was intended to last, and did last, less than one year.

Therefore, by default, anything paid to, for, or on behalf of an assignee on an assignment of a year or greater (i.e. not short term) is considered taxable compensation. The long-term assignee wouldn’t be getting all of these benefits if it weren’t for his long-term employment status. Even though the company provides housing (for example) to their long term assignee, the company should calculate and include an “imputed” sum in the W-2 for the company provided housing which is similar to including “lease value car” amounts in an executive’s pay.

Example 2: Joan accepts a temporary assignment away from her tax home for 6 months, intending to return to her tax home at the finish of the temporary assignment. After 4 months at the temporary job assignment, Joan agrees to stay for an additional 14 months. Joan is not taxed on employer reimbursements for travel expenses paid or incurred during the first 4 months of her temporary assignment. Joan will be taxed on reimbursements for the additional 14 months because the assignment has now become an indefinite assignment. If there had been a reasonable basis at the start of the assignment to believe that it would be extended, then it would have been considered indefinite from the start. Revenue Ruling 73-578 and updated by Rev. Rul. 93-86.

Attached below is a helpful excel spreadsheet that is useful in accumulating Expatriate / Inpatriate compensation details. This tool is helpful not only in segregating the components required for tax return preparation, but it is also helpful in accumulating each pay check in order to provide compensation details to countries with fiscal tax year ends. This tool can be used to accumulate both home and host country compensation in the appropriate currency. Additionally, a one page detail can be generated from this summary for your assignees. Finally, we are proud to announce that this tool will now automatically calculate the required annual FICA gross up or gross down.

Download Current Tool here -> Compn_Tracking_V14.xls

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