2013 Global Mobility Tax and Payroll Issues

New 2013 Global Mobility Tax & Payroll Issues
Speaker: David S. Oltman – [email protected]
Title: Chief Compliance Officer Ineo/Relocation Taxes, LLC
Location: Marriott River Center, Covington, KY
Date: Thursday, September 19th and Friday, September 20th
Time: Thursday afternoon 3:30pm to 4:30pm repeated Friday morning
9:45am to 10:45am
Today’s Speakers
David S. Oltman, CRP
Chief Compliance Officer Ineo, Company Co-Founder Relocation Taxes, LLC
David S. Oltman is one of the relocation industry's foremost tax resources. David has brought
his expertise and the strength of Relocation Taxes, LLC to the Ineo family of services. David now
leads Ineo's Tax division, Relocation Taxes, and serves as the company’s Chief Compliance
Officer.
Prior to joining Ineo, David co-founded Relocation Taxes, LLC and The Hessel Group U.S. and
U.K. in 1987. David began his relocation career as the Manager of Benefits Administration and
Relocation at Ciba Geigy/Novartis Corporation.
He is a member of The International Foundation of Employee Benefits Plans and The Employee
Relocation Council, and co-founder of the Relocation Council of New York City.
David is an ERC Meritorious Service Award winner.
David holds a B.A. in Human Resources and an M.B.A. in Finance.
Agenda – Learning Objectives – At the completion
of the session, you should know:
What the new 2013 relocation tax laws are and how they
affect your company.
State taxes and how they effect the gross-up calculation –
multi-state tax/gross-up issues
New 2013 gross-up methodologies - how your company can
save money.
Hot 2013 policy trends, 10 things every transferee should
know before moving
What gross-up and “keep the transferee whole” really mean
– AMT issues
First Time Home Buyers Tax Credits, $8,000 and $6,500 –
gross-up ramifications - Paybacks
1099-C’s and W-2’s and W-2C’s – pros, cons and
compliance
2013 Short Sales and the tax impacts of forgiveness
How Payroll reporting and taxation of relocation
reimbursements are handled
Why temporary assignments are the hottest issue in 2013
H.R. 1129 and S. 3485 – potential New 30 day state tax
withholding rules effective in 2014
FICA $113,700 (6.20%) withholding issues/paybacks and
the cost of forgiveness
Tax coding/relocation accounting /compliance IRS expense
reporting issues
IRS audit targets – relocation red flags
New 2013 Higher Medicare Rates 2.35% (1.45% & 0.90%)
and 3.80% and the relocation effects
New IRS Form 8938 – Foreign Financial Assets Form –
Required by many transferees
Form TD F 90-22.1 Reporting of Foreign Bank Financial
Accounts – relocation impacts
New 2013 Corporate Tax & Payroll Issues
Tax Credits lost on tax returns – Education Credits and American
Opportunity Credits – IRS Form 8863 (Phase-out range “Single”
$80,000 - $90,000 and “Married Filing Joint” $160,000 to $180,000),
Child Tax Credits ($110,000, $130,000, $150,000…). See RTA p. 11.
Repayment of Home Buyer Tax Credit – IRS Form 5405 if moved again
within 3 years. All these issues can effect the transferred employee by
several hundred dollars, to several thousand dollars, to well over
$10,000+. See RTA p. 44.
Recommendation: Only after doing a complete gross-up audit in 2013 of the
employee’s 2012 tax return. Cost usually between $275 to $425 per audit.*
The importance of proper tax preparation can not be over stated. For
example a FL to OH move – and not allocating state wages properly.
*Business Expense. Not taxable.
New 2013 Corporate Tax & Payroll Issues
1) AMT Tax (Alternative Minimum Tax) effects – could effect 10 times more taxpayers, “Target”
result is the corporate transferee. (higher gross-ups). See RTA p.10 & page 44
2) All Tax Brackets where indexed for inflation (significant lower gross-ups in 2012 – average
was 60% - they will be higher in 2013) See RTA p.11. Brand new – lower phase-outs of
itemized deductions (went from 3% to 2% to 1% to 0% in 2010 and 2011 - and lower phase-out
for personal exemption amounts 1/3 reduction and a new minimum of $2,333 ($3,700 x.
66.67%) per personal exception. 0% in 2010 and 2011. In 2013 the 2% and 3% phase outs
are back . 2013 higher tax rates – gross-up impact - over 85%+ gross-ups for
“executive” moves.
3) How states are catching employees who do not report their wages. Tax Amnesty. Hotel &
credit card gas receipts. IRS Employment Tax Audits Begin in 2010 and will run through 2013.
A significant number of audits have been started.
4) New State Sales Tax Deduction – Applies mainly to transferees in nine (9) no income tax
states. AK, FL, NV, NH, SD, TN, TX, WA & WY (lower gross-ups) See RTA p.12 Average
savings of $600 per move.
5) Reduced Home Sale Exclusion & New Home Buyer Tax Credit ($8,000/$6,500). Very
complex. See RTA – p.44 IRS Form 5405 – plus new “Repayment Letter” being sent by IRS
based on address changes. If house turned into rental – credit must be repaid.
2013 & 2012 Federal Tax Limits and Thresholds
25% / 39.6% if over 1 million
$0.565 / mile
2012
$3,800
$1,000
$110,100
4.20%
$999999999 1.45%
25% / 35% if over 1 million
$0.555/mile
Final Move Deductible Rate:
$0.24 / mile
$0.23/mile
Standard Deduction:
SNG
MFJ
HH
MFS
$6,100
$12,200
$8,950
$6,100
$5,950
$11,900
$8,700
$5,950
Exemption Phase-out:
SNG
MFJ
HH
MFS
$250,000
$300,000
$275,000
$150,000
N/A
N/A
N/A
N/A
Itemized Ded. Phase-out:
SNG
MFJ
HH
MFS
$250,000
$300,000
$275,000
$150,000
N/A
N/A
N/A
N/A
Value of Exemptions:
Child Tax Credit:
Social Security (OASDI):
Medicare:
Supplemental Rate:
Business Mileage Rate:
*For 2013 for each $2,500
($1,250 MFS) that AGI exceeds the
threshold, 2% of exemption. value is lost.
*For 2013 for each dollar that AGI exceeds
threshold,, 3% of itemized. ded. is lost.
Child Tax Credit Phase-out*:
* For every $1,000, or fraction thereof,
that AGI exceeds the threshold, $50 of
the child tax credit is lost.
2013
$3,900
$1,000
$113,700
6.20%
$200k/$250k/$125k 1.45%+ if> 2.35%
SNG $55,000
MFJ $110,000
HH
$75,000
MFS $55,000
$55,000
$110,000
$75,000
$55,000
2013 & 2012 Federal Tax Rates and Gross-up Percentages
2013 Tax Brackets
Tax Rate Gross-up %
2012 Tax Brackets
Tax Rate
Gross-up%
Single:
$0$ 8,925 $ 36,250 $ 87,850 $ 183,250 –
$ 398,350 –
$ 400,000 -
$ 8,925
$ 36,250
$ 87,850
$ 183,250
$ 398,350
$ 400,000
+
10%
15%
25%
28%
33%
35%
39.60%
11.11%
17.65%
33.33%
38.89%
49.25%
53.85%
65.56%
$0$ 8,700 $ 35,350 $ 85,650 $ 178,650 $ 388,350 -
$ 8,700
$ 35,350
$ 85,650
$ 178,650
$ 388,350
+
10%
15%
25%
28%
33%
35%
11.11%
17.65%
33.33%
38.89%
49.25%
53.85%
Marr. Filing Joint:
$0$ 17,850 $ 72,500 $ 146,400 $ 223,050 $ 398,350 $ 450,000 -
$ 17,850
$ 72,500
$ 146,400
$ 223,050
$ 398,350
$ 450,000
+
10%
15%
25%
28%
33%
35%
39.60%
11.11%
17.65%
33.33%
38.89%
49.25%
53.85%
65.56%
$0$ 17,400 $ 70,700 $ 142,700 $ 217,450 $ 388,350 -
$ 17,400
$ 70,700
$ 142,700
$ 217,450
$ 388,350
+
10%
15%
25%
28%
33%
35%
11.11%
17.65%
33.33%
38.89%
49.25%
53.85%
Head of Household:
$0$ 12,750 $ 48,600 $ 125,450 $ 203,150 $ 398,350 $ 425,000 -
$ 12,750
$ 48,600
$ 125,450
$ 203,150
$ 398,350
$ 425,000
+
10%
15%
25%
28%
33%
35%
39.60%
11.11%
17.65%
33.33%
38.89%
49.25%
53.85%
65.56%
$0$ 12,400 $ 47,350 $ 122,300 $ 198,050 $ 388,350 -
$ 12,400
$ 47,350
$ 122,300
$ 198,050
$ 388,350
+
10%
15%
25%
28%
33%
35%
11.11%
17.65%
33.33%
38.89%
49.25%
53.85%
Marr. Filing Sep:
$0$ 8,925 $ 36,250 $ 73,200 $ 111,525 $ 199,175 $ 225,000
$ 8,925
$ 36,250
$ 73,200
$ 111,525
$ 199,175
$ 225,000
+
10%
15%
25%
28%
33%
35%
39.60%
11.11%
17.65%
33.33%
38.89%
49.25%
53.85%
65.56%
$0$ 8,700 $ 35,350 $ 71,350 $ 108.725 $ 194,175 -
$ 8,700
$ 35,350
$ 71,350
$ 108,725
$ 194,175
+
10%
15%
25%
28%
33%
35%
11.11%
17.65%
33.33%
38.89%
49.25%
53.85%
2013 Hot!!! Federal & State Tax Issues
Temporary Assignments – 1 year rule – business vs. taxable. See RTA pages 8 & 9 also
Revenue Ruling 93-86. New Trend to “reconcile” state taxes – “Keep Employee Whole
For State Income Tax ”. New Proposed Tax Bill – H.R. 1129 & S. 3485 – “30 Day Rule”
(was H.R. 1129 & 3359 & 2110 - 60 day rule). “Mobile Workforce State Income Tax
Fairness and Simplification Act”. The methodology used is to calculate what the
employee “would have paid” in Federal and State/Local taxes (in the “live state”) – then
compare that amount to what the employee “actually paid” in Federal and State/Local
taxes (in the temp. “work state”). The difference between those two amounts is the
amount due the employee. Issues to consider:
a)
b)
c)
d)
e)
Any State income tax dollars that were “advanced” or “loaned”
The taxability of “advances” or “loans”
Multi-state tax credits taken or not taken on state tax returns
Non-Resident and Part-Year Resident state tax returns
Administration of the program – “loans”, “advances” and “repayments”
* Proposed Effective Date 1/1/2014 – See RTA p. 13
2013 Tax & Payroll Issues
•
•
•
•
•
•
•
•
•
•
Global Assignments – Stealth Expatriates – tracking issues. See RTA pages 14 thru 19.
E-Solutions – New trends – Lots of software on the market – average cost $50 - $75
per move. From Gross-ups to Int’l Hypo Taxes, to Lump Sum software.
US Government (WITA/RITA) - Sen. Grassley - GRAB. See RTA pages 38 & 39
Capital Losses on home sales are NOT deductible. See RTA page 2
The Mortgage Forgiveness Debt Relief Act. “Short Sales” no longer taxable, Negative
Equities and Loss on Sales.
IRS Revenue Ruling 2005-74 (updates 72-339) – Corporate home sale procedures
clarified. Third Party home sales NOT taxable.
First Time Homebuyers Credit: $8,000/$6,500 (MFJ $225,000; SNG $125,00) start of
phase out range. Three year pay back period. See IRS Form 5405 Very complex.
Three (3) year payback provision. IRS has just started sending out repayment request
letters, to employees who have “changed their address” or “moved” or have “rented
their house”.
Commuters – Expenses & Salary taxable in both “live” and “work” states.
Same Sex Marriage Status – IRS Rev. Ruling 2013-17. Generally speaking, same sex
couples will be treated as married for all federal tax purposes.
Average Gross-up Percent's – Could go from 60% to over100% based on proposed
2014 and 2015 tax changes.
IRS 2013 Tax Forms & and New Medicare Rates
•
•
•
•
•
•
•
•
RTR - "Relocation Tax Report" - replaces old "IRS Form 4782“. See RTA p. 25
3903 - "Moving Expenses" - taxpayer required. See RTA p. 29
Sch. D - "Capital Gains and Losses" - replaces old "IRS Form 2119“
New Form 8938 – Similar to TD F 90-21.1 – Report Foreign Bank Accounts
and Interests, >$10k, or $50K or $100k
New 2012 Federal, State, Local and F.I.C.A. (Social Security – 4.20%)
$110,100 & Medicare 1.45% unlimited) tax brackets. The 2012
FICA/Medicare brackets – have changed. The longtime OASDI rate for the
employee of 6.20% was changed to 4.20% in 2011 and 2012. The
employer rate remains 6.20%. This represents a potential several hundred
dollar per move gross-up savings.
New 2013 FICA Limit $113,700 and 6.20% rate.
New 2013 Medicare Rate increases to 2.35% if over (Single $200k, MFJ
$250k) and a new 3.8% tax on unearned income. Complex calculation.
States that follow the pre-1994 "rules" allowing the final move meal
deduction / exclusion.
NJ* / PA**
* Allows only a 100% exclusion of Final Move Meals on NJ-1040
** Allows a 100% deduction of Final Move Meals on PA-40R-UE-1
Penalties for Failure to Withhold Taxes on a Timely Basis
Most all relocation expense reimbursements or
supplemental wage payments are subject to withholding
at the time of payment. Most companies use the
Supplemental rate of 25% and apply a gross-up
percentage. Accountable Plan rules apply, using the
30/60/120 rule. Taxable moving expenses (lump sums)
are treated as if they were paid under a "nonaccountable" plan. An average penalty of $8,000 per
move could cost a company that relocates 200
employees per year, 1.6 million dollars for each year of
non-compliance.
Tax Saving Strategies (Withhold/Gross-up)
(1) When ever possible, always look for a business purpose for an expense. For
example, Moves less than 1 year (temporary assignments), a Pre-employment
physical, House Hunting Trips as business trips (breakout spouse expenses). Use a
TP Home Sale Company or Qualified In-House Program. Tax Gross-up Savings
over $9,000 per move.
(2) Have trained accounting/relocation tax expense professionals tax code and audit
all expenses entered from the transferee's expense report. Average cost savings is
several thousand dollars per move. Average cost to audit $50 per file.
(3) Do not include either Van Line or Final Move expenses in a "Lump-Sum"
allowance. Why? Because not taxable when receipts are provided. Employees can
still deduct their moving expenses even if they receive a lump sum that is taxable and
grossed-up. Lumps Sum Software $50 to $75 per move.
(4) Re-capture any FICA overpayments – Year-end “true-up” – only adjust for
“negatives” differences. Tax Gross-up Savings over $1,000+ per move.
(5) Explain/Educate employees with regard to how their gross-up was calculated.
Priceless!!!!!
Hot !!! 2013/14 Relocation Trends
•
Year-end “true-up” or “difference” or “delta” calculation. Negatives only
“adjustments”. Big savings in gross-ups Average gross-up is over $10,000.
(Average savings over $2,000 per move).
•
Only gross-up at supplemental rate [ 25% ], let transferees come back and request
more. Gross-up Audit after the fact. (Average savings over $1,000 per move).
•
Companies now paying for Domestic Tax Return preparation included as a
relocation benefit. Saves company’s significant time and money – both hard and
soft dollars. $900+/-
•
•
Companies now paying for a “pre-move tax consult” - $350
•
Expense Management Audits – Relocation Accounting Audits. (Average costs $425
per audit or several thousand dollars to audit a “batch” of records).
•
Reconcile State Taxes for employees who go on a temporary assignment or
Commuter assignments. Gross-up wages for extra state taxes when needed.
Gross-up Audits – for AMT, Home Buyer Credit and Other Lost Credits. Cost $425
per move.
•
New 2013 Policy Language Required: “Gross-up audit/tax reconciliations will only
consider company income with regards to determining the appropriate tax bracket,
only credits truly lost based on the actual tax return will be considered.”
Lump Sums – Very popular, software is available. $50 - $75
10 Things Every Employee Should Know Before Considering a Move
1) Income will be inflated due to moving expenses paid by your company. Make sure that
federal and state withholdings are sufficient to cover the increase. Also, the year after
the move, most transferees are more likely to be under withheld. If in doubt, contact
your tax advisor. See RTA p.7 Also, If your company paid your Van Line bill, you can
NOT deduct it on IRS Form 3903. If you rent out your house, you will have to repay
the Home Buyer Tax Credit – Usually $8,000.
2) Make sure that a state W-4 form has been prepared and given to your payroll
department so that withholding is being taken out in the proper state. YOU ARE
REQUIRED TO HAVE WITHHOLDING TAKEN IN THE STATE THAT YOU WORK IN,
EVEN IF YOU ARE A RESIDENT OF ANOTHER STATE! This should become
effective the first paycheck received in the new place of employment. See RTA p.7, 12 & 13
3) In addition to the state, your new city may also require tax to be withheld. Review your
first pay stub to make sure that this is being done (if applicable). See RTA page 12
4) Keep in mind that excess FICA withheld from two or more employers is refundable, Line
69 IRS tax form 1040. Affects both working spouses.
5) You have up to two years to satisfy the time test, to establish permanent residency, in
order to deduct moving expenses.
10 Things Every Employee Should Know Before Considering a Move
6) Special costs, that are unique to you, are also deductible as moving
expenses such as pets, horses, aquariums and tips paid to “movers &
packers. No limit on the number of cars that can be moved and deducted.
Rental Losses can be carried forward. See RTA p.4
7) The cost of moving students, from their college to the new location, is
deductible.
8) In the year that you move, remember that any non-amortized points on a
refinanced loan can be deducted if you sell your house. See RTA p.8
9) Premature distributions from pension plans are not only taxable as income
but incur a 10% penalty unless rolled over within 60 days. There is often a
misconception how the rules for first time homebuyers work. Also in the
year of a move, income is inflated and this is probably not a good time to
take an early distribution.
10) The year after the move, significant potential for under withholding
penalties exist. It could be hard to meet any of the safe harbor rules:
Owe<$1,000, or pay at least 100% of last year’s liability, if AGI is >$150k, then
pay 110% of last years liability. See RTA p.7
Gross-up Audits – With/Without Move Analysis
Common mistakes CPAs make with transferees' tax returns with regard to
“Keeping The Transferee Whole"
(1) The tax return is prepared incorrectly!!!. Excludables (W-2 Box 12 –
Items preceded by the letter “P”) are not properly reported and carried
forward to the 1040 Federal tax return. IRS Form 3903 “Moving
Expenses” is not completed properly, or not at all. Points / Loan
Origination fees are not deducted properly on IRS Schedule A. Part
year and non-resident State Tax Returns are not completed properly, or
not at all.
(2) Accountant is not familiar with the company's relocation tax gross-up
policy. For example, what expenses are Grossed-up and which
expenses are not subject to tax assistance.
(3) Other income (spouse income) is used to establish tax brackets both
"with" and "without" the move.
(4) Points and Mortgage Interest are deducted both "with" and "without"
move
Gross-up Audits – With/Without Move Analysis
(5) State and Local Gross-up tax dollars are deducted "with" and "without"
the move.
(6) Recapture Excess FICA taxes Withheld.
(7) Rental Losses can be carried forward.
(8) Improper Deductions are taken on tax returns.
Comment: If the transferee "partially loses the benefit of their Standard
Deduction", or the new “General Sales Tax Deduction”; in other words, is
forced to itemize; the transferee has been adversely affected.
For example, the maximum "Standard Deduction Loss" exposure:
Standard Deduction Married Filing Jointly
$12,200 (MFJ)
.25%
$ 3,050 "Extra Tax Owed Because of Move“
Additionally, transferee’s who exercise stock options, have rental
properties, AMT and generally more complex tax issues should consider
having “professional” tax preparation and review” by trained relocation tax
experts.
Money Saving Gross-up Policy Decision Opportunities
2013 GROSS-UP DECISIONS
• Use Tax Tables
YES/NO
Additional Cost Per Move*
_____
Several Thousand Dollars
• State Taxes
_____
Moved To/From / Both? $1,000
• Include Fed. in State
_____
$350
• Local Taxes
_____
$150
• F.I.C.A. Taxes
_____
SS / Med / Both SS
$250
• F.I.C.A. Circular Logic
_____
$400
$1,000 / Medicare
Money Saving Gross-up Policy Decision Opportunities
2013 GROSS-UP DECISIONS
YES/NO
Additional Cost Per Move*
– Deduction/Exempt. Phase-out
____
$500 (No 2012 phase-out)
– Assume Itemized Deductions
____
$600 (New GST)
– Gross-up "Unqualified" Moves
____
$5,800
– Misc. Expense Allowance
____
$4,000
– COLA / MIDA
____
$6,000
____
$150
– Loss on Sale
____
$10,000 to $50,000+
– AMT, WPC, First Time HB Credits
____
$1,000 - $20,000+
– Annualize New Hire Salaries
____
Several Thousand Dollars
was in 2012
– $0.565/$0.24 cents per mile ($.555
&
$.23)
Money Saving Gross-up Policy Decision Opportunities
2013 GROSS-UP DECISIONS
YES/NO
• Look at Non-itemizers (Renters)
____
$500+
• Economic Stimulus Package
____
$0 to $3,000+
• Third Party Home Sale Company
____
$9,000
• Other
____
58% to 60% of
Benefits Paid Commuters – 85%+
for “executives”
Additional Cost Per Move*
The dollar amounts presented are estimates only. The actual dollar amount will
vary based on the total cost of the move, what state is used for tax purposes, and of
course the company's relocation tax gross-up policy.
* Savings documented well over $2,000 per move.
Copyright Ineo/Relocation Taxes, LLC 2013 – David S. Oltman [email protected]