The Coronavirus Aid, Relief, and Economic Security Act (CARES Act)
President Trump signed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) on March 27, 2020, which provides a wide range of relief for individuals and businesses negatively impacted by the viral pandemic. Among the provisions is an immediate economic stimulus payment from the Internal Revenue Service (IRS) to certain individuals, including many globally mobile employees. In the coming weeks, mobility programs should make an evaluation of the impact this payment has on its population and policies.
What is the U.S. tax stimulus payment?
The much-publicized economic stimulus payment is actually a ‘2020 recovery rebate’, or an ‘advanced refund’, for eligible individuals based on income level, filing status, and qualifying dependent children.
The payment is $1,200 for single taxpayers, $2,400 for joint filers, and $500 for each eligible child. Phase-outs of the amounts are applied when Adjusted Gross Income (AGI) exceeds $75,000 for single taxpayers, and $150,000 for joint filers. The phase-out is $5 for every $100 AGI exceeds the threshold.
Numerous expatriates use a company address on their tax returns, and employers should anticipate the receipt of stimulus checks in these circumstances.
An estimate of the credit is being automatically paid to individuals based on the most recent federal tax return filed: tax year 2018 or 2019; the final credit will then be calculated on the 2020 tax return. Payments will be directly deposited to accounts that authorized electronic refund delivery, otherwise a check will be mailed. In addition, within 15 days after the payment has been distributed, the IRS will mail a notice to the last known address indicating the payment method, amount of payment, and an IRS contact phone number for any questions or disputes.
Companies should encourage employees to check their address on file with the IRS, and file Form 8822, Change of Address, as needed. Numerous expatriates use a company address on their tax returns, and employers should anticipate the receipt of stimulus checks in these circumstances.
The IRS has published IR-2020-61 with respect to economic impact payment FAQs.
CARES Act Calculator: How much will you receive?
How will this U.S. tax stimulus impact Global Mobility and your assignees?
Many US-oubound employees have inflated AGIs due to taxable assignment-related allowances or reimbursements, such as relocation costs, employer-provided housing, cost-of-living allowances [COLAs], etc, and therefore may not qualify for the 2020 recovery rebate when they otherwise would have.
The difference between the actual payment received and the amount that would have been received without assignment allowances may need to be reconciled on a tax equalization settlement. Indeed, certain individuals may need to wait for the preparation of their 2020 tax return and equalization during 2021 to actually receive their benefit payment. In these circumstances, companies might elect downwardly adjustment hypothetical withholdings, or fund advances (but this approach comes with additional gross-up costs to the employer).
Conversely, a tax equalized individual may actually receive a higher payment than on a stay-at-home basis because of the Foreign Earned Income Exclusion. For example, a single individual with a salary of $100,000 would normally not be eligible for a payment, but the Foreign Earned Income Exclusion could reduce their AGI to below the phase-out threshold. Theoretically, the individual should not be eligible to receive and keep the stimulus money. Does the company tax equalization policy provide guidance for this situation, or does a program decision need to be made?
Does the company tax equalization policy provide guidance for this situation, or does a program decision need to be made?
Similarly, a tax equalized foreign national working in the US during 2018, 2019, or 2020 may receive a stimulus payment. Under normal circumstances, payments and refunds from US tax authorities are the benefit of the company, as employers are funding the US tax liabilities. However, these payments are a direct result of a unique emotional, physical, and financial hardship. Requiring employees to direct the payment to the company may be an accurate interpretation of the equalization policy but come at the detriment of employee morale and/or public relations. The potential headline of ‘Company ABC Forces Employees To Turn Over Stimulus Check’ may likely not be worth the potential amount that could be collected.
...these payments are a direct result of a unique emotional, physical, and financial hardship.
The above impact will not only apply to employees that are US outbound or inbound in 2020, but also potentially to individuals that had their 2018 or 2019 AGIs effected. Mobility programs should conduct an analysis of impacted employees to determine if tax preparation services should be authorized for 2020 for reconciliation of stimulus payments. In some cases, the cost of the tax return compliance can exceed the actual benefit received by the employee.
Global Mobility actions to take around the U.S. tax stimulus payment:
1. Anticipate employee questions!
2. Evaluate and analyze current tax equalization policies with respect to the economic stimulus payment (and update policies, as necessary)
3. Make an informed decision of the company’s stimulus check position on equalization, advance/collection, and compliance.
4. Communicate company position and action items to impacted employees (ideally before checks are scheduled to be sent on April 6th)
AIRINC is here to help with the actions items above or any other questions and support that you need during this time of constant change. Reach out to your client engagement representative today or email us directly at: firstname.lastname@example.org.
COVID-19 is changing the world
COVID-19's impact continues to spread and we are following it closely. We know that this is impacting you, your assignees, and your business, and that you're likely finding more questions than answers.
Last week, AIRINC launched a COVID-19 landing page to aggregate the best Mobility-related sources into one place. Visit it now by clicking here or below to see all the latest updates:
Listen | Partner | Deliver. For over 60 years, AIRINC has helped clients with the right data, cutting-edge technology, and thought-leading advice needed to effectively deploy talent worldwide. Our industry expertise, solutions, and service enable us to effectively partner with clients to navigate the complexity of today’s global mobility programs. As the market continues to evolve, AIRINC seeks innovative ways to help clients address new workforce globalization challenges, including mobility program assessment metrics and cross-border talent mobility strategy. Our approach is designed with your success in mind. With an understanding of your goals and objectives, we ensure you achieve them. Headquartered in Cambridge, MA, USA, AIRINC has full-service offices in Brussels, London, and Hong Kong. Learn more by clicking here.