Mobility Tax: The Essentials: What Global Mobility Teams Need to Know

Global mobility can transform a relatively straightforward employee tax position into a much more complex one.

When an employee begins working across borders, questions quickly arise around where income is taxable, where payroll reporting is required, whether allowances and benefits create additional taxable income, and how an employer should manage the resulting tax costs.

These were the central themes of the first session of AIRINC & Andersen's Mobility Tax: The Essentials Refresher series, What is Mobility Tax? The session covered the basics of mobility tax, typical mobility scenarios, the tax treatment of allowances and expenses, gross-ups, and mobility payroll.

What do we mean by “mobility tax”?

“Mobility tax” is the term commonly used to describe what happens to individual taxation and corporate payroll taxation when employee mobility is added to the mix.

At a high level, mobility tax sits at the intersection of individual income tax and social security, corporate payroll taxation, and mobility.

The complexity comes from the fact that these areas do not always follow the same rules.

For income tax purposes, the jurisdiction where income is sourced will typically have a principal right to tax that income. At the same time, an employee may also be taxed on worldwide income in the jurisdiction where they are tax resident. This means that two countries can potentially have the right to tax the same income. Tax treaties can sometimes limit or coordinate those taxing rights, but they should not be viewed as automatically eliminating host-country tax obligations.

The threshold for creating a tax obligation can also be much lower than many employees or business stakeholders expect. In some circumstances, even a single workday can matter.

Poll #1: Testing some common mobility tax assumptions

During the session, we asked participants:

Which of the following statements is true?

• No income tax is triggered until 30 days have passed in a country 6%

• Social security and income tax have the same rules 1%

• Payroll is a large area of corporate risk exposure 82%

• If there is a tax treaty in place, there is no host tax liability 11%

The poll showed strong awareness that payroll is a major area of corporate risk, but the discussion also exposed some persistent mobility tax myths. There is no universal “30-day rule” — companies may use 30 days as an internal risk threshold, but tax can arise much sooner depending on the jurisdiction and circumstances. Likewise, a tax treaty does not automatically remove host-country tax; the relevant conditions still need to be met.

The key takeaway: mobility tax rarely comes down to one simple threshold. Timing, location, payroll and the underlying employment facts all matter.

Where someone is paid is not necessarily where they are taxed

One of the most important mobility tax concepts is income sourcing.

Generally, the location from which an employee receives their salary is not what determines where employment income is sourced. Instead, the employee’s work location is usually the critical factor.

Consider a simplified example. An employee earns $100,000 and is paid entirely through U.S. payroll. During the year, however, they spend 20% of their working time in Mexico. On a basic workday sourcing approach, $20,000 of that compensation may be considered Mexican-source income.

For mobility teams, this is why understanding where employees are physically working can be just as important as knowing which payroll employs or pays them.

Not all mobility scenarios create the same tax issues

Mobility programmes now cover a much broader range of arrangements than the traditional expatriate assignment. These can include short-, medium- and long-term assignments, permanent transfers, host-based or localized arrangements, as well as business travelers, commuters, remote workers, virtual assignments, rotational arrangements, and other flexible or hybrid working models.

Two employees may receive similar relocation support, such as immigration assistance and household-goods shipping, but their tax treatment can be very different depending on whether one is on a three-year assignment and the other is making a permanent transfer. The employee’s expected length of stay, payroll arrangement, compensation structure, benefits, tax policy, and intention to return home can all change the analysis.

Poll #2: What mobility policies are companies using?

We also asked participants:

What types of policies does your company use?

Participants could select multiple answers.

• Short-Term Assignments 82%

• Long-Term Balance Sheet 53%

• Long-Term Host-Based 51%

• Permanent Moves 77%

• Other 29%

These results can provide a useful snapshot of just how varied today’s mobility populations have become. They are also a reminder that tax processes need to accommodate more than one type of mobile employee. A programme built solely around traditional long-term expatriates may struggle to manage the risks created by short-term assignments, permanent moves, commuters, and increasingly flexible working arrangements.

A useful starting point for allowances and expenses

Another major source of complexity is determining whether mobility-related allowances, reimbursements, and employer-paid expenses are taxable.

A useful general starting point is simple: if an employer pays something to an employee, or pays it on the employee’s behalf, it is probably taxable unless a specific exemption or rule applies.

The actual outcome, however, varies significantly by jurisdiction. Taxability can depend on the length of the assignment, time spent in the country, eligibility for special expatriate tax concessions, how a benefit is delivered, whether local law provides an exemption or partial exemption, and whether an expense qualifies as an employer business expense. In some locations, certain allowances may also be taxed at the employer level rather than being taxed directly to the employee.

This is an area where global policies often meet very local tax rules. A housing benefit, relocation reimbursement, or home-leave trip should therefore not automatically be treated the same way everywhere an organisation operates.

Why gross-ups become important

Mobility programmes frequently promise to deliver certain payments or benefits to an employee net of tax.

That creates another tax issue. If an employer reimburses an employee’s tax liability, that reimbursement is generally itself taxable compensation. This creates additional tax, often referred to as “tax-on-tax.”

A gross-up is the mechanism used to address this.

For example, if an employer wants an employee to receive $20,000 after tax and the combined applicable tax rate is 39%, simply paying $20,000 plus 39% of $20,000 will not be sufficient because the tax reimbursement itself is taxable.

Using the simple flat-rate gross-up example from the session, the required gross amount was $32,787, producing a gross-up tax amount of $12,787.

In practice, calculations can become more sophisticated when progressive tax rates, deduction phase-outs, social security ceilings, and other factors are involved. The session also introduced an incremental gross-up approach to account for those complexities.

Payroll may be where some of the biggest corporate risks sit

A common question is whether an employee can simply report overseas income when filing their personal tax return.

Often, that misses an important part of the picture.

Corporate compliance is heavily driven by payroll reporting and withholding requirements. Employers may have obligations to report compensation and withhold tax during the year, rather than waiting for the employee to resolve the position through an annual return. The session also highlighted shadow payroll and split payroll as important concepts in managing cross-border payroll.

International payroll can become particularly challenging when employers need to manage offshore payments, different payroll frequencies between home and host locations, exchange rates for payroll reporting, gross-ups, hypothetical tax withholding, and bonuses or other variable compensation.

These requirements are one reason mobility tax cannot be managed solely as an employee tax-return exercise. It requires coordination between global mobility, payroll, tax, HR, and external providers.

What mobility teams should take away

The fundamentals of mobility tax are deceptively simple. Teams need to understand where the employee works, which jurisdictions may have taxing rights, what social security and payroll obligations may arise, and how mobility-related compensation and benefits should be treated.

The challenge is that each of those questions can produce a different answer depending on the country and mobility scenario involved.

For mobility teams, three principles are particularly useful. First, do not assume presence thresholds are generous, because tax and reporting obligations can arise sooner than expected. Second, treat payroll as a core part of mobility tax compliance, rather than focusing only on employee tax returns. Third, design processes around the mobility population you actually have, since assignments, transfers, commuters, business travelers, and remote workers may each require different tax and payroll approaches.

As mobility continues to evolve, understanding these fundamentals gives teams a stronger foundation for identifying risk, asking the right questions, and building more effective cross-border processes.

CRP/GMS Credit

This webinar was eligible for 1 CRP/GMS credit. If you watch the webinar recording, you can download the certificate for claiming CRP/GMS credits here.

Coming next in the series

Session 2: Tax and Mobile Compensation

October 21 | 10:00 AM Boston / 4:00 PM Brussels

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• How does tax affect international assignment compensation?

• Our second session moves beyond the basics to explore the relationship between global mobility tax, compensation and assignment costs.

Session 3: Tax Considerations for Different Assignment Types

November 17 | 10:00 AM Boston / 4:00 PM Brussels

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An international assignee, a business traveler and a remote worker may all be working across borders, but their tax considerations can look very different.

• Our final session explores how tax considerations change depending on how an employee is mobile.

• With organizations managing more varied forms of employee mobility, understanding these differences is an increasingly important part of running an effective global mobility program.

Presenters:

Patrick Jurgens, Director of Global Tax, and Jeremy Piccoli, Director of Global Tax Solutions at AIRINC, with Adam Schwartz, Director and Global Mobility Tax Transformation & Technology Lead, and Lynda Ngo, Director of Global Mobility at Andersen.