America's Tax Overhaul

America’s Tax Overhaul: Implications for Global Mobility

Policy Insights. Business Intelligence.

Understand. Prepare. Act with Confidence. Presented by Grant Thornton Businesses that use national and global mobility as a strategic growth tool know that For businesses that operate a tax equalization program for international assignments managing the tax burdens and employment costs of mobile employees is a unique – wherein employees’ tax burdens are adjusted to remain the same regardless of challenge. Regulatory compliance, including tax, is one of the most pressing logistical assignment location and the company settles actual home and host country taxes – the issues in global mobility management. new tax law will increase employee compensation costs for many to account for greater tax burdens. Companies may find that tax equalization costs and overall program costs The consequences of tax reform will make managing the cost of mobility even more increase even while U.S. tax rates decrease. challenging for businesses while increasing the complexities of a mobile workforce in 2018 and beyond. New changes to the tax code1 will require proactive assessment of the financial impacts of tax reform as well as substantial revision to existing company Bill provisions applying to global mobility policies, immediately and over time, as certain provisions expire in years to come. Global mobility programs will be most affected by changes to individual income tax rates and changes to exemptions and deductions (particularly concerning moving expenses). Internationally mobile individuals will also be impacted by changes such as those concerning homeownership.

Tax Reform Impact

Income tax rate Rate cuts across 7 tax brackets with changes to bracket thresholds

Standard deduction Raises deduction amounts to $12,000/$24,000

Personal exemption Repeals exemptions

Employer-paid moving expenses Repeals income exclusion

Moving expenses (non-military) Repeals deduction

State and local taxes Limits total deduction up to $10,000

Limitation on itemized deductions Eliminates overall limitation

Charitable contributions Increases AGI limitation on cash contributions from 50% to 60%

Individual alternative minimum tax Increases exemption amounts and start of exemption phaseout thresholds

Child tax credit Increases credit amount to $2,000, with $1,400 of that refundable; sets higher income limit for phase-out

Home mortgage interest deduction $750,000 mortgage debt limit, also applies to 2nd home; eliminates deduction for interest on home equity debt

Exclusion of gain from home sale Retains exclusion of $250,00/$500,000 gain with use requirement of 2 out of 5 years

Employer-provided housing Retains exclusion

1 U.S. House of Representatives, “Tax Cuts and Jobs Act Conference Report,” http://docs.house.gov/billsthisweek/20171218/CRPT-115HRPT-466.pdf

2 Tax rates and deductions Taxes on home ownership The new tax law alters tax rates, providing a lower rate to most U.S. taxpayers. But for The provisions regarding home mortgage interest mean that employees who own many, tax savings from reductions in marginal tax rates may be neutralized by the residences in both their home and assignment countries would be limited in how much reduction and elimination of certain deductions and exemptions, especially the personal interest they can deduct, increasing their tax burden. Gains from sale of a principal exemption and the limitation in the state and local tax deduction. residence may still be excluded, and those rules - including the use requirement - will Such provisions may affect the cost of employee mobility and the perceived return on likely continue to factor into an employee’s decision about accepting global assignments. investment for employers. For example, the limit on deducting state and local taxes from federal taxes may make relocation to states with higher income taxes less desirable. Impact on assignment costs If employees are moving to the U.S. from an overseas country and their employers are For companies that operate a tax equalization program for international assignees, the managing U.S. tax on their behalf, the tax cost will be higher in some states than others. changes to the tax code will influence the cost of global mobility programs. Any increase By contrast, companies may pay more in overall tax costs for employees who would in the difference between new U.S. income tax rates and the tax rates of assignee benefit from a lower tax burden and who relocate overseas to a country with higher countries could result in an increase in tax costs. Similarly, for those individuals relocating income tax rates, such as the UK or Australia. to the U.S. on assignment, low- or no-tax states will be financially more attractive than higher tax states. Similarly, the increase in income thresholds for the alternative minimum tax (AMT) may lower employees’ tax burdens and, in cases where employees are tax equalized, may Notably, the new law stipulates that changes in individual income tax rules will expire increase the tax cost to the company. in 2025, leading to increases in tax liability for tax payers. This shifting tax landscape will result in ongoing logistical burdens and shifting costs to project and manage as Such changes and increases in tax cost may restrict companies’ success in maintaining companies work to keep up with and understand the changes. and building robust mobility programs, or may require a much greater financial outlay to maintain the activity level of their current programs. Conclusion The new U.S. tax law presents extensive complications for the management of global Taxes on moving expenses and employer-provided housing mobility programs. The new law is most likely to increase the cost of global mobility and Since the bill repeals the exclusions for moving expenses and employer-provided moving has the potential to dampen both employers’ and employees’ enthusiasm for relocation. expense reimbursements, companies may have to account for an increased tax cost for Proactively assessing these changes’ financial impact and exploring new strategies moving reimbursements or make employees shoulder the tax burden. Companies that for managing the costs of international mobility should be on the agendas of all global provide housing for employees who are posted to remote locations, such as on oil and businesses. gas installations and construction sites, can expect to keep benefiting from the exclusion for employer-provided housing. “The new tax law presents extensive complications for the management of global mobility and the need to balance overall costs with return on investment.”

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