2018 Worldwide ERC. June 19, :00 am (ET)

Transcription

1 June 19, :00 am (ET)

2 Worldwide ERC Government Affairs Update

3 WORLDWIDE ERC WEBINAR DISCLAIMER The views, opinions, and information expressed during this webinar are those of the presenter and are not the views or opinions of Worldwide ERC. Worldwide ERC makes no representation or warranty with respect to the webinar or any information or materials presented therein. Users of webinar materials should not rely upon or construe the information or resource materials contained in this webinar as legal or other professional advice and should not act or fail to act based on the information in these materials without seeking the services of a competent legal or other professional.

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6 CRP and GMS Certification If you are a CRP seeking CE credit for this webinar, you may utilize the CRP credits management portal, available online under My Account. The seminar ID is (All (S)CRPs must apply for credit and submit the $8 processing fee to receive CE credit) If you are a GMS seeking CE credit for this webinar, you must include the name/date of this webinar on your GMS Renewal Application (at the time you apply for recertification).

7 Today s Presenters Headshot here, sized to placeholder. Headshot here, sized to placeholder. Tristan North Government Affairs Adviser Worldwide ERC Peter K. Scott Tax Counsel Worldwide ERC

8 Government Affairs Update Capitol Hill Overview Dodd Frank Reform Moving Americans Privacy Protection Act Immigration General Data Protection Regulation (GDPR) Brexit

9 Capitol Hill Overview

10 Immigration Worldwide ERC is establishing itself as a strong voice on business immigration issues Meeting held on June 18 between Worldwide ERC representatives and key congressional staffers on immigration issues Worldwide ERC is becoming resource for policymakers on immigration issues important to our members Focusing on a wide-range of business immigration issues including but not limited to L-1, H-1B visas and spousal eligibility, J-1 visas While status of DACA is currently dominating the immigration debate, we are tracking the possibility of movement (both pro and con) on business immigration this year

11 Dodd-Frank Reform Bill On March 13, the Senate voted 67 to 31 in favor of the Economic Growth, Regulatory Relief, and Consumer Protection Act (S. 2155) Raises from $2 billion to $10 billion in assets the threshold for banks in which mortgages can be considered qualified mortgages under the small creditor category Exempt appraisal requirements in rural areas for homes under $400,000 if a qualified appraiser cannot be retained No Wait for Lower Interest Rates provision. Currently, the lender must provide information regarding the annual interest rate and monthly payments to the borrower at least three days before the closing Requires the lender on a foreclosed property to give the borrower 90 days notice to vacate the premises In situations where the foreclosed property is being rented, the lender must allow the tenant to stay through the end of the lease unless the new purchaser plans to use the property as a primary residence

12 Moving Americans Privacy Protection U.S. Customs and Border Protection (CBP) is required to release vessel manifests which can include personally identifiable information of individuals shipping goods Information can include Social Security numbers, passport numbers and addresses Data brokers purchase information compiled by CBP and use for marketing and analysis purposes and post on websites On May 1, 2017, Senators Daines (R-MT) and Peters (D-MI) introduced the Moving Americans Privacy Protection Act (S. 998). On November 15, 2017, Representatives Denham (R- CA) and Pascrell (D-NJ) introduced House companion bill (H.R. 4403) On April 14, 2018, House passed H.R on voice vote

13 GDPR General Data Protection Regulation (GDPR) is the new regulation covering data protection and privacy standards for EU residents including transferees Replaces the previous EU Data Protection Directive in place since 2005 Applies to companies and organizations, regardless of where they are based, which come into contact with data of EU residents Companies must appoint a Data Protection Officer Individuals have more control over who has access to their data and provides ability to have their data removed Penalties for violations of GDPR are fines up to 4% of total gross annual revenue or $23 million Enforcement of GDPR took effect on May 25

14 Brexit Negotiations between EU and UK officials on post-brexit agreement as well as Brexit transition agreement UK and EU have until March 29, 2019, to reach an agreement Transition period is between March 29, 2019 and December 31, 2020 with formal withdrawal of UK on January 1, 2021 Regarding immigration, officials have agreement that current treatment of UK citizens residing in the EU and EU citizens residing in the UK will continue during transition period UK also permitted to negotiate trade agreements during transition period Key point of negotiation continues to be the free movement of citizens between Republic of Ireland as EU member and Northern Ireland as part of UK On June 23, 2016, a majority of UK voters opted for UK to leave the EU On March 29, 2017, the UK Government triggered Article 50 which is the formal process for the withdrawal from the EU

15 Tax Update Tax Reform Relevant Changes & Impact Moving Expenses Deductions Rates, Brackets, Etc. Impacts Unanswered Questions

16 Tax Reform: Relevant Changes & Impact Enacted 12/22/2017 Effective for 2018 tax year Major changes that affect Mobility: No deduction/exclusion for moving expenses State/local tax deduction limited to $10,000 Mortgage interest deduction decreased, no HELOC Rates/brackets lower (also supplemental withholding rate) No personal exemptions, but standard deduction doubled Inflation adjustment changed No deduction for miscellaneous itemized deductions, entertainment Child tax credit increased

17 Provisions Not Changed Relocation home sale programs Temporary assignments Home sale capital gain exclusion Foreign earned income/housing exclusion (section 911)

18 Moving Expenses Deduction/Exclusion suspended through 2025 All payments/reimbursements for household goods, storage, final move travel includable in employee income beginning in 2018 Must withhold at time of payment, pay payroll taxes No deduction for employee for any non-reimbursed expenses 50-mile rule, 1-year rule no longer have any tax relevance Do not apply to home sale programs But may be policy reasons to retain Transition issue 2017 moves paid for in 2018 Not clear if still deductible/excludable No guidance from IRS

19 International Moves U.S. assignee moving abroad-taxable Distinction between U.S. or foreign earned income now more relevant for section 911 Also may be relevant for foreign tax Outbound move taxable as foreign earned income under U.S. rules May also be taxable in foreign country Foreign employee assigned to U.S. Moving expenses to U.S. taxable as U.S. income Moving expenses back to home country should not be taxable in U.S. Requirement that child/dependent have SSN for child credit may mean that many resident alien employees cannot take the credit Storage expenses now fully taxable Old law allowed deduction/exclusion of storage expenses for entire foreign assignment (domestic moves 30 days)

20 Impact of Loss of Moving Expense Break Since now taxable, companies must decide whether to gross up Gross up is expensive Worldwide ERC surveys show average of $14,500 now taxable moving costs Many way, way higher Estimates provided to Congress were that American businesses would incur up to $2 billion per year in extra costs from gross-up Initial gross-up is at supplemental rate, so lower than before (22% vs. 25%) But that may simply lead to more end-of-year complaints/corrections, depending upon impact of reform on particular transferee

21 Moving Expense: States Companies do not know whether to treat reimbursements/payments as taxable in many states Most states follow federal law But about half do so automatically (called rolling conformity), half based on a fixed date (called static conformity) In rolling conformity states, moving expense deduction/exclusion is no longer available unless they change their law to allow it In static conformity states, deduction/exclusion still in place unless state acts to update its conformity date without excluding that change

22 Moving Expense: States 12 static states have acted: 8 now follow federal law: Georgia, Idaho, Indiana, Iowa, Ohio, Oregon, West Virginia, Wisconsin 4 still allow exclusion: Arizona, Hawaii, Kentucky, Virginia 8 static states haven t acted, moving expense still excludable: Arkansas, California, Maine, Massachusetts, Minnesota, North Carolina, South Carolina, Vermont One rolling conformity state has kept exclusion: New York 18 rolling conformity states exclusion currently not allowable: Alabama, Colorado, Connecticut, D.C., Delaware, Illinois, Kansas, Louisiana, Maryland, Michigan, Missouri, Montana, Nebraska, New Mexico, North Dakota, Oklahoma, Rhode Island, Utah 3 non-conformity states: New Jersey, Pennsylvania: allow exclusions; Mississippi: does not allow exclusions

23 Moving Expense Reaction What are companies actually doing about all this? Worldwide ERC does not have survey data Many RMC s informally say that their client base is generally deciding to gross up, at least pending any change in company relocation program Many are simply assuming expenses taxable in each state Others are waiting for state action Companies are also working on the relocation budget going forward, and whether it can accommodate the additional costs without changing number of moves, mix of moves, benefits, etc. Those analyses may ultimately impact the number of moves So far, there is no indication that lump sum programs have become more prevalent Most companies appear to be retaining 50-mile and 1-year rules for moves

24 Deductions State/local taxes Aggregate itemized deduction for income, property, sales tax limited to $10,000 No difference whether filing joint or single No foreign property tax deductions allowed No 2017 prepayment of 2018 income tax allowed Some high-tax states enacting/considering work-arounds Mortgage interest deduction Acquisition debt on which interest deductible reduced to $750,000 (was $1 million) No deduction for home equity debt (old law allowed interest on $100,000) But interest on home equity loan used to substantially improve residence still deductible (total debt limited to $750,000) Old acquisition debt, but not home equity debt, grandfathered Miscellaneous itemized deductions no longer allowed Previously allowed subject to 2% of AGI floor under prior law No deduction for business entertainment

25 Rates, Brackets, Etc. Rates and brackets at which they apply reduced Still have 7 rates 10%, 12%, 22%, 24%, 32%, 35%, 37% Top 6 rates are all lower than before (top rate down from 39.6%) Brackets put taxpayers at lower rates than before on same income Example: Joint income up to $315,000 now taxed at 24%; previously 28-33% Inflation adjustment for future changed to chained CPI. Will lower future inflation adjustments Supplemental withholding rate reduced from 25% to 22% Third lowest rate Rate generally used for federal gross-up calculations Additional Medicare taxes on high-income taxpayers retained (3.8% on unearned income and 0.9% Medicare)

26 Exemptions/Std Deduction/Child Credit Deduction for personal exemptions eliminated Was $4,050 in 2017, would have been $4,150 in 2018 Standard deduction roughly doubled Now $24,000 married filing joint, $12,000 single Prior 2018 number would have been $13,000 married, $6,500 single Child tax credit increased from $1,000 to $2,000 per child Still limited to children under 17 Adds an additional $500 credit for other dependents NEW - Must have SSN for each child/dependent claimed Income level at which credit begins to phase out raised from $110,000 to $400,000 (married joint) and from $75,000 to $200,000 (single)

27 Impacts With lower rates, brackets, many transferees will have lower taxes But many will also be adversely affected by new limits on state/local taxes and mortgage interest deduction They also have additional taxable income from newly taxable moving expense reimbursements/payments They also cannot deduct extra moving expenses (like tips to drivers) any more Bottom line: some will owe more taxes, not less (independent analysis says only 65% of taxpayer will owe less, while 9-10% will owe more) A lot less taxpayers will itemize (46.5 million in 2017, 18 million in 2018) Every transferee should be encouraged to recalculate withholding using the IRS withholding calculator available on the IRS website or to speak with their tax advisor to plan for the impact on their personal situation. Gross-up may be either too high, or too low. Either is a problem In year-end planning, companies will need to decide if they will accept gross-up appeals this year if their policy does not allow or is silent.

28 Impacts-Loans Mortgage Subsidies Not directly affected by tax reform Reduction of total allowable mortgage debt may leave employees with increased taxable income Generally mortgage subsidies not grossed up even though taxable because additional income to transferee has been offset by additional interest deduction Some transferees may have total mortgage debt over $750,000, not able to take full deduction Some transferees may no longer itemize at all, even with a mortgage, due to lower state/local deduction, larger standard deduction Bridge/Mortgage loans Interest, if any, no longer deductible on home equity bridge loans Relocation mortgage loans subject to new limits Duplicate Housing Transferee may not be allowed full interest deduction for subsidized mortgage

29 Impacts-Misc. Itemized Deductions Disallowance of miscellaneous itemized deductions may affect temporary assignees, remote workers. Employees traveling were allowed to deduct unreimbursed expenses as miscellaneous itemized deductions (subject to a 2% of AGI floor) Extra travel costs above employer allowance (meals, etc) Can no longer do so Remote workers typically take deduction for home office No longer allowable to employees (was a miscellaneous itemized deduction) Other expenses such as business phone, publications, etc, also not deductible Repayments under payback agreements no longer deductible Extra tax costs may provoke complaints, requests for policy changes

30 Impacts-Business Meals Tax reform law disallows all deductions for entertainment (50% was allowed under old law) Business meals still allowed as deduction Not clear at all if/how change relates to business meals at venues also including entertainment, or preceding/following/during entertainment Could impact costs of temporary assignments If traveler entertains a client/prospect, nothing deductible, reimbursement taxable Company holiday parties, picnics, still deductible, but business meals for employees on premises of employer only 50% deductible instead of 100%

31 Unanswered Questions Many unanswered questions included in materials in prior slides Require answers from IRS in many cases Tax reform includes changes to 119 tax provisions that will require guidance from IRS IRS says it will have to create or revise about 450 forms, publications, and instructions, and modify about 140 information technology systems Estimates additional cost about $397 million Congress has given IRS additional $320 million Many of the unanswered questions will persist, require companies to make their own decisions based on best judgment

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