23 rd Annual CFO Roundtable and Tax Director Workshop

Transcription

1 23 rd Annual CFO Roundtable and Tax Director Workshop Las Vegas, Nevada

2 Disclaimer Ernst & Young refers to the global organization of member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young LLP is a client-serving member firm of Ernst & Young Global Limited located in the US. The Ernst & Young organization is divided into five geographic areas and firms may be members of the following entities: Ernst & Young Americas LLC, Ernst & Young EMEIA Limited, Ernst & Young Far East Limited and Ernst & Young Oceania Limited. These entities do not provide services to clients. This presentation is 2015 Ernst & Young LLP. All rights reserved. No part of this document may be reproduced, transmitted or otherwise distributed in any form or by any means, electronic or mechanical, including by photocopying, facsimile transmission, recording, rekeying or using any information storage and retrieval system, without written permission from Ernst & Young LLP. Any reproduction, transmission or distribution of this form or any of the material herein is prohibited and is in violation of US and international law. Ernst & Young LLP expressly disclaims any liability in connection with use of this presentation or its contents by any third party. Any US tax advice contained herein was not intended or written to be used, and cannot be used for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions. These slides are for educational purposes only and are not intended, and should not be relied upon, as accounting advice. The views expressed by speakers at this event are not necessarily those of Ernst & Young LLP. Page 2

3 Agenda Global Mobility Workforce Topic 1. Disaster relief for employees 2. Employer provided meals and the Boston Bruins 3. State wage withholding and reporting 4. Reporting and withholding for US inbound and outbound employees Page 3

4 Employer Provided Disaster Relief

5 Time line of disaster-related federal tax relief President approves emergency at request of state- FEMA declaration is posted for individual assistance President approves major disaster area at request of state FEMA declaration is posted for individual assistance IRS announces tax relief based on FEMA major disaster declaration Disaster relief payments are tax free in declared states for expenses incurred in connection with the declared (often impending) disaster No emergency declaration? Disaster relief assistance applies also to disasters also Leave sharing is allowed for qualified disaster areas of the state Disaster unemployment assistance is available through the state workforce agencies Tax filing extensions and and abatement of payroll deposit penalties Leave-based donations Qualified retirement plan relief Page 5

6 FEMA declarations What they tell us Name and nature of the disaster Incident period: Start date of benefits Public and/or individual assistance State and its covered counties/parishes Special disaster-related tax provisions like IRC 139, leave sharing, etc., apply only if there is individual or individual and public assistance Page 6

7 How is state defined? Generally, (an exception applied, for instance, for Ebola and Haiti), tax-favored disaster relief provisions are available only to individuals in a presidentially-declared disaster area defined in IRC 165(h)(3)(c)(i) As stated in the FEMA declaration process A State also includes the District of Columbia, Puerto Rico, the Virgin Islands, Guam, American Samoa, and the Commonwealth of the Northern Mariana Islands. The Republic of Marshall Islands and the Federated States of Micronesia are also eligible to request a declaration and receive assistance through the Compacts of Free Association Payments made to persons not meeting the state definition (i.e., a foreign person) are foreign-sourced wages not subject US reporting and withholding Page 7

8 Emergency areas and eligible benefits Hurricane Harvey, Irma and Maria Emergency areas with individual assistance Tax-exempt IRC 139 charities disaster benefits Ø Qualified retirement plan relief + Ø Leave sharing Alabama (Irma) Georgia (Irma) Louisiana (Harvey) Puerto Rico (Maria) Seminole Tribe of Florida (Irma) South Carolina (Irma) U.S. Virgin Islands (Maria) Ø Disaster unemployment benefits Ø Leave-based donations Page 8

9 Major disaster areas and eligible benefits Hurricane Harvey and Hurricane Irma Tax-exempt charities Qualified retirement plan relief Disaster unemployment benefits + IRC 139 disaster benefits Leave sharing Leave-based donations Major disaster areas with individual assistance Florida (Irma) Broward, Charlotte, Clay, Collier, Duval, Flagler, Hillsborough, Lee, Manatee, Miami-Dade, Monroe, Palm Beach, Pinellas, Putnam, Sarasota and St. Johns Puerto Rico (Irma) Culebra (Municipio), Vieques (Municipio) Texas (Harvey) Aransas,Austin, Bastrop, Bee, Brazoria, Calhoun, Chambers, Colorado, DeWitt, Fayette, Fort Bend, Galveston, Goliad, Gonzales, Hardin, Harris, Jackson, Jasper, Jefferson, Karnes, Kleberg, Lavaca, Lee, Liberty, Matagorda, Montgomery, Newton, Nueces, Orange, Polk, Refugio, Sabine, San Jacinto, San Patricio, Tyler, Victoria, Walker, Waller, Wharton US Virgin Islands (Irma) St. John (Island) (County-equivalent), St. Thomas (Island) (County-equivalent) Page 9

10 Federal employment tax filing/payment relief Major disaster areas for Hurricanes Harvey and Irma Jurisdiction Start date Extended deadline Florida Major disaster areas Irma Puerto Rico Major disaster areas Irma September 4, 2017 September 5, 2018 January 31, 2018; deposit penalties waived if tax paid by September 19, 2017 January 31, 2018; deposit penalties waived if tax paid by September 20, 2017 Texas Major disaster areas Harvey August 23, 2017 January 31, 2018; deposit penalties waived If tax paid by September 7, 2017 US Virgin Islands Major disaster areas Harvey September 6, 2017 January 31, 2018; deposit penalties waived if tax paid by September 21, 2017 Page 10

11 Wage advances and loans Debby Salam

12 Wage advances Benefits and considerations Why a wage advance? Provides employees with immediate cash without concern for meeting the qualification requirements for disaster relief and with little or no financial impact to the employer 1 For executives, confirm that wage advances don t create excess compensation limits pursuant to IRC 162(m) Confirm that early bonus payments don t create adverse consequences under IRC 409A Keep in mind that wage advances are taxable on the date paid Wage repayments that cross tax years complicate employer reporting and could pose possible adverse tax consequences for employees Page 12

13 Wage advances claim-of-right doctrine When wage repayments are made in years subsequent to the advance, the IRS instructs employers in IRS Publication 15 that special rules govern the Form W-2c There may also be adverse consequences to the employee under the claim-of-right rule (IRS Publication 525, Taxable and Nontaxable Income) The amount of the subsequent-year repayment is reported on Form W-2c for the year of the advance, but only for the purpose of reducing Social Security (Form W-2, box 3) and Medicare (Form W-2, box 5) wages and related taxes The employer issues a FICA refund to the employee once employee completes requisite written statement Note that state rules governing wage repayments may vary Page 13

14 Employee loans Benefits and considerations Why a compensation-related below market loan? Provides employees with immediate interest- and tax-free cash without concern for meeting the qualification requirements for disaster relief and with little or no financial impact to the employer, provided the loan balance is repaid 1 There is no tax impact to employees or employers if the daily aggregate loan balance is below $10, Imputed income must be computed for the value of interest on loan balances in excess of $10,000 Loan balances forgiven are treated as taxable wages on the day forgiven Employer must enforce the loan repayment terms (e.g., payroll deduction of recurring installment payments) Page 14

15 Tax-free employer-provided disaster relief

16 Tax-free employer-provided disaster relief Benefits and considerations Why provide disaster relief to employees? Provides employees in qualified emergency/major disaster areas with immediate tax-free cash for qualified disaster-related expenses under IRC 139 with no requirement for gathering receipts to substantiate expenses or losses. There are no Form W-2 or Form 1099 reporting requirements. (Revenue Ruling ) 1 Applies only to employees who live or work in emergency or major disaster areas eligible for FEMA individual assistance Page 16 Applies only to those expenses and losses specified in IRC 139 Not available for expenses or losses already covered by insurance, FEMA or charities; thus, signed employee statements are recommended May be paid directly to employees or to third parities on behalf of employees

17 IRC 139 disaster relief Covered expenses Qualified expenses are those connected with a qualified disaster and include: Reasonable and necessary: Personal, family, and living expenses Funeral expenses Temporary housing and transportation expenses Repair or rehabilitation of a personal residence Repair or replacement of contents of personal residence Page 17

18 Funding IRC 139 employee disaster relief Check with your tax advisor about state and local tax treatment Employer funds 100% Employer makes grants and takes deduction on federal business tax return Result Employee grants are taxfree* Employer bears 100% of cost Cash donations to other than exempt charity Employer solicits donations from employees and others through platform like GoFundMe or contributions are deposited directly to a financial account for use by the employer Result Employee grants are taxfree* Employer costs reduced Donors contributions are not tax deductible but employer s costs are Page 18

19 Leave sharing and leave donations

20 Leave sharing Benefits and considerations Why provide leave sharing? Provides employees impacted by a presidentially-declared major disaster with paid-time off donated by other employees with no direct cost incurred by the employer. (IRS Notice ; I.R.B.) 1 A written plan is required; if only select groups are eligible to participate, confirm ERISA compliance Leave is taxable to recipient and not the donor employee A deduction for the charitable leave donation is not available to the donor employee Leave cannot be converted to cash and can be used only for the current major disaster Page 20

21 Leave sharing Key plan requirements 1 Leave donors cannot specify who will receive the paid leave 4 Plan must specify how much leave each recipient may receive 2 Leave donations cannot exceed the maximum amount an employee normally accrues for the year 5 Unused leave must be returned to donors in the same proportion as the amount of leave donated by the leave donor bears to the total amount of leave donated 3 Plan must specify the period of time in which leave must be used 6 Leave recipients may use donated leave to eliminate a negative leave balance a rising from the major disaster Page 21

22 Leave-based donations to charities Benefits and considerations Why provide leave-based donations to charities? When specifically allowed by IRS announcement pursuant to a major disaster area, employees can elect to have the employer donate the cash value of their paid leave to an IRC 170(c) charitable organization The value of leave donated is excluded from employees wages subject to federal income tax, federal income tax withholding and Social Security/Medicare Because the donated leave is excluded from taxable wages, employees cannot also claim a deduction for the charitable donation The employer can deduct the leave it donates to an IRC 170(c) organization under the rules of IRC 162 Leave-based donations meeting these requirements are not reported on Form W-2 in boxes 1, 3 or 5 Page 22

23 Hurricane Harvey disaster relief: FEMA and IRS Agency Disaster Declaration Effective Date Link FEMA Texas declaration Major disaster area- individual Aug. 23, and public assistance isaster/4332 FEMA Louisiana Emergency declaration Aug. 27, declaration IRS Tax filing due date extension and penalty relief for Texas counties Aug. 23, 2017 extended to Jan.1, 2018 isaster/ wsroom/tax-relief-forvictims-of-hurricaneharvey-in-texas IRS Leave-baseddonations to Payments made before IRS IRC 170 organizations are Jan.1, 2019 /irs-drop/n pdf excluded from taxable wages Qualified retirement plan hardship distribution and loan relief Distributions and loans made on or after Aug. 23, 2017, and no later than Jan. 31, /irs-drop/a pdf TexasComptroller s Tax filing extensions Extension of up to 90 Office days to file tax returns s.gov/taxes/resources/ to a business affected disaster-relief.php by a declared disaster. Request the extension either by phone or .. Page 23

24 Hurricane Irma disaster relief: FEMA Agency Disaster Declaration Effective Date Link FEMA Alabama declaration FEMA Florida declaration FEMA Florida declaration FEMA- Georgia declaration FEMA-South Carolina declaration FEMA-Puerto Rico declaration FEMA Puerto Rico declaration FEMA Seminole Tribe of Florida declaration FEMA-U.S. Virgin Islands declaration FEMA U.S. Virgin Islands declaration Emergency area-individual and public assistance Emergency area-individual and public assistance Major disaster-public and individual assistance Emergency area-individual and public assistance Emergency area-individual and public assistance Major disaster area-individual and public assistance Emergency area- individual and public assistance Emergency area- individual and public assistance Emergency area- individual and public assistance Major disaster area-individual and public assistance Sept. 08, 2017 to Sept. 14, 2017 Sept. 4, 2017 Sept. 4, 2017 Sept. 7, 2017 Sept. 6, 2017 Sept. 5, 2017 Sept. 5, 2017 Sept. 4, 2017 Sept. 5, 2017 Sept. 5, isaster/ isaster/ isaster/ isaster/ isaster/ isaster/ isaster/ isaster/ isaster/ isaster/4335 Page 24

25 Hurricane Irma disaster relief: IRS Agency Disaster Declaration Effective Date Link IRS Florida Filing and tax payment extensions Sept. 4, 2017 and before Jan. 31, 2018, due Jan. 31, 2018; penalty abatement if payments made by Sept. 19. Link IRS Puerto Rico Filing and tax payment extensions Sept. 5, 2017 and before Jan. 31, 2018, due Jan. 31, 2018; penalty abatement if payments made by Sept. 20. Link IRS US Virgin Islands Filing and tax payment extension Sept. 6, 2017 and before Jan. 31, 2018 due Jan. 31, 2018; penalty abatement for employment and excise tax payments made by Sept. 21 Link IRS All Irma major disaster areas Retirement plan hardship distributions and loan relief Sept. 4 to Jan. 31, 2018 Link IRS All Irma major disaster areas Leave-based donations to IRC 170 organizations are excluded from taxable wages Payments made before Jan.1, 2019 Link Page 25

26 Employer on Site Meals Boston Bruins Case

27 Overview of Bruins Case Tax court ruled in Jeremy M. Jacobs et ux. v. Commissioner that pre-game meals provided to players and staff traveling with Boston Bruins were not taxable as de minimis fringe benefits under IRC 274(n)(2)(B). (Jacobs is owner of the Bruins) Ruling is significant because de minimis fringe benefit meals are not subject to the 50% limitation under 274(n)(1) In order to be considered de minimis fringe benefit meals the meals must be: at eating facility owned or leased by employer, operated by the employer, furnished before/during/after workhours, and revenue from facility must equal or exceed operating costs (as defined in IRC 132(e) Additionally, the meals must be provided at or near the business premises of the employee. Court determined that the right to use and occupy hotel banquet facilities qualified as being leased by the employer as Bruins even though the agreement with the hotel did not identify the contract as a lease Page 27

28 Overview of Bruins Case Because the Bruins dictated the time, place, set up and specific meals to be served, the banquet room qualified as being operated by the employer. The court determined that because the Bruins travel significantly away from home and in away cities, the hotel in which the meals were served would be deemed as part of the Bruins business premises, The value of the meals are also excludible from employee income under IRC 119. Case is very fact specific and must be carefully analyzed to determine if Court s position may be applied in other circumstances. Could potentially apply to employee camps for long term construction projects. If IRS files appeal, taxpayers may wish to consider filing protective refund claims as it may take several years to determine whether decision is upheld under appeal. Page 28

29 State Wage Withholding and Reporting Page 29 Executive Tax Update 2016

30 State income tax sourcing When does reporting and withholding apply? Resident state Employee resident state is determined based on length of time employee is present in the state Income tax withholding on wages is required if employer has nexus in this state Nonresident state All services here are subject to income tax withholding unless de minimis or other exemptions apply Keep in mind, nonresident employment can trigger nexus Nexus exists if: Employee works from home office and such employment constitutes nexus under jurisdiction s law Employer has permanent establishment or property within the jurisdiction (e.g., office, plant or other assets as specified under state law) Employees perform services in the jurisdiction of the nature that constitutes nexus under the jurisdiction s law Page 30

31 Nonresident income tax for short assignments Only 23 states have an exemption based on days or earnings WA WA WA MT ND ME CA OR NV ID UT AZ WY CO NM SD NE KS OK MN IA MO AR WI IL IN MI TN KY OH WV SC PA VA NC NY VT NH DC NJ DE MD MD MA RI CT In most states, nonresident income tax withholding and reporting applies no matter the length of time in the state AK TX LA MS AL GA De minimis nonresident income tax exemption HI FL No income tax withholding State income tax withholding Page 31

32 State reciprocal agreements An exception to the nonresident income tax requirement Some states have entered into reciprocal agreements (usually with bordering states) where nonresident state income tax is not required States and District of Columbia with reciprocal agreements Example: Under Indiana s reciprocal agreement, income tax withholding is not required for services performed in the state by residents of Kentucky, Michigan, Ohio, Pennsylvania and Wisconsin if employees have properly completed and filed Indiana Form WH-47 with the employer District of Columbia Illinois Indiana Iowa Kentucky Montana New Jersey North Dakota Ohio Pennsylvania Generally, the exemption from nonresident income tax under a reciprocal agreement doesn t apply unless the employee files the required certificate with the employer (usually, a certificate of nonresidency Maryland Michigan Minnesota Virginia West Virginia Wisconsin Page 32

33 Telecommuter considerations The home office could be a local business office If employees regularly work from home, the home office could be treated as a work location of the employer in many states (and localities) If the home office is deemed an employer work location, the business can be subject to income tax withholding, unemployment insurance and other businesses taxes In a New Jersey case, it was determined that a foreign corporation with a principal place of business in Maryland was subject to New Jersey s corporate income tax requirements because one of its employees was allowed to work on a full-time basis from her New Jersey home office (Telebright Corporation v. Director, N.J. Super. Ct. App. Div., Dkt. No. A T2, 03/02/2012) Page 33

34 Telecommuter considerations Nonresident income tax may apply in the headquarters state Some states (e.g., New York) take the position that 100% of the wages paid to a nonresident are subject to New York income tax if the employee is working out of state for the employee s own convenience The rule applies when an employee receives direction and control from a New York location and the employee works in New York for any period in the year To argue that work location is for the employer s convenience, there must be a direct business benefit in having the employee work outside of New York The rule can result in double taxation (e.g., tax in both the resident state and New York) The US Supreme Court declined to hear a challenge concerning the constitutionality of this law (Zelinsky v. Tax Appeals Tribunal) Page 34

35 Trailing compensation Sourcing delayed wage payments to the jurisdiction earned Scenario 1 In 2016, employee is relocated to Nevada and is paid bonus In 2015, bonus is earned in New York In many US states and localities, lump sum payments such as accrued paid time off, severance, equity compensation and nonqualified deferred compensation must be sourced to the jurisdiction(s) where the compensation was earned for income tax withholding purposes Scenario 2 In 2015 and 2016, employee lives and works in New Jersey and is paid bonus in 2015 In 2014, employee works part-time in New York and earns bonus For US state income tax purposes, an exception applies to qualified retirement and to top heavy plans (Supplemental Executive Retirement Plan (SERP) or nonqualified deferred compensation) that are paid in substantially equal periodic payments over a period of not less than ten years (P.L ) Page 35

36 The top most misunderstood facts Common income tax withholding tax errors occur in these areas 1 The New York 14-day rules don t extend to employees personal income tax obligations. 6 A federal tax treaty exemption does not necessarily apply to state and local taxes. 2 Income tax exemptions under tax treaties and reciprocal agreements are not necessarily automatic. 7 Income tax may continue to apply to trailing compensation even after the employee transfers to another state. 3 Employers are responsible for knowing where their employees are working and the tax that applies. 8 Computation of resident income tax varies when employees work outside of the state. 4 Employee work at home may be considered a place of business for resident nexus purposes.. 9 Federal law prohibits nonresident income tax for certain industries and payments. 5 Employees working from home may owe tax in the corporate office state. 10 Short-term work assignments are not necessarily disregarded for nonresident income tax purposes. Page 36

37 Exercise - State wage reporting and withholding You maintain a business office in Minnesota. Your employees works one day in Florida where there is no income tax, and one day in New York. In which states will you withhold state income tax? A. Florida B. Minnesota? C. New York D. B and C Page 37

38 Exercise - State wage reporting and withholding You maintain a business office in Minnesota. Your employees works one day in Florida where there is no income tax, and one day in New York. In which states will you withhold state income tax? A. Florida B. Minnesota C. New York D. B and C D. The business has nexus in Minnesota and resident income tax is mandatory. New York s 14-day exception does not apply to the employee s individual income obligation, so the employer should withhold New York income tax. Page 38

39 State income tax withholding and reporting matters What can go wrong? How can we help? Failing to properly source wages to the correct state resulting in withholding liability and sanctions Employee dissatisfaction from errors in proper at-source withholding Reputational risk Perform a state income tax withholding audit risk assessment Assist in the design of policies and governance procedures to reduce future risk Perform multistate income tax withholding calculations for business travelers and trailing compensation Prepare original and amended returns and information statements We work together with other EY service lines when necessary to address issues that cross borders or US tax laws Page 39

40 Reporting and Withholding for US Inbound and Outbound Employees Page 40

41 US inbound federal employment taxes Nonresident aliens in the US 1 Social Security and Medicare (FICA) Applicable to wages connected with services performed within the US by most employees Special rules apply to flight crews and members of vessels Exclusion applies to employees holding these US visas: F1, J1, M1, Q1, or Q2 Employees who pay social tax in another country, may claim exclusion if there is a totalization agreement between that country and the US (generally limited to five years). Employer must have certification of social coverage in the foreign country For 2016, employee pays 6.2% on wages up to $118,500, 1.45% on all wages, and 2.35% on wages over $200,000 For 2015, employer pays 6.2% on each employee s wages up to $118,500 and 1.45% on all wages 2 Federal Unemployment Insurance (FUTA) Apples to all covered employers having employment within the US An employer (including a foreign employer) is covered if: During any calendar quarter in the calendar year, or during the preceding calendar year, paid wages of US $1,500 or more, or Employed at least one individual for some portion of each day for 20 days during the calendar year, each day being in a different calendar week. Exclusion applies to employees holding these US visas: F1, J1, M1, Q1, or Q2 For 2015, employer pays 6.0% on wages up to $7,000 per employee. A variable credit that reduces the rate may apply for unemployment insurance paid to the state(s) Page 41

42 Federal income tax withholding Nonresident aliens in the US* 3 Temporary employment exclusion? 4 US permanent establishment (PE)? 5 Treaty eligible? All wages earned in the US are subject to federal income tax withholding unless: The employee is present in the US for a period of 90 days or less for the taxable year, and Compensation in the aggregate for the taxable year is $3,000 or less Services are provided for a foreign employer that has no US permanent establishment Example: Business visitors attending a meeting in the US for the benefit of the foreign employer [IRC 861(a)(3)] While the US maintains treaties with a number of countries to prevent dual taxation, those treaties will generally stipulate that they do not apply if the employer has a permanent establishment (PE) in the US. PE generally exists under a treaty if: Number of days in the US for the tax year is exceeded (e.g., for Canada treaty, 183 days) There is a fixed US location from where work is performed The nature of the employee s activities in the US triggers a PE If the employer/employee qualify for a treaty exemption, federal income tax is not required if: The employee completes, signs and gives the employer a Form 8233 with a US taxpayer identification number Wages exempt under the treaty are reported on Form 1042, 1042-S,1042-T Nonresident alien is required to file Form 1040NR if US sourced income equals or exceeds one personal exemption ($4,050 in 2016) Page 42

43 Social Security totalization agreements Social security totalization agreements eliminate dual social tax when a worker is required to pay such tax on the same earnings in more than one country These agreements also fill gaps in benefit protection when workers have divided their careers between the US and another country The exemption under a totalization agreement applies for a limited period, generally, five years Employees must present a certificate of coverage from the foreign country to qualify for exemption from US Social Security and Medicare tax under the agreement Countries with Social Security totalization agreements with the US Australia France Poland Austria Germany Portugal Belgium Greece Slovak Republic New in 2014 Brazil (in process) Ireland South Korea Canada Italy Spain Chile Japan Sweden Czech Republic Luxembourg Switzerland Denmark Netherlands United Kingdom Finland Norway Page 43

44 Common Visa Situations F-1 or F-1/OPT F-1 Nonresident Visas Statement from USCIS Website: Foreign students may be allowed to work in the US under certain circumstance Students may not be able to work off campus during the first academic year Students on F-1 Visas will be issued a Form I-20, Certificate of Eligibility for Nonimmigrant Student Status Form I-20 Upon student acceptance into a student and exchange visitor program certified school, the school official will issue the I-20 Form I-20 is for F-1 and M-1 visa status Student and student dependent must have Form 1-20 to apply for visa, to enter the US and apply for benefits Form I-20 is needed when applying for US visa at local US embassy or consulate, entering the US, applying for drivers license or Social Security number Page 44

45 Common Visa Situations J-1 J-1 Nonresident Visas (Exchange Visitors) Generally used for purposes of teaching, lecturing, studying, conducting research, to receive graduate education or training, etc. Statement from USCIS Website: Some J-1 Visa holders enter the US for employment while others do not. Employment is authorized only under the terms of the exchange program J-1-student (service grant) and J-1-researcher (non service grant) Visitors applying for a J-1 Visa are required to submit Form DS-2019, Certificate of Eligibility for Exchange Visitor Status. This form is provided by your sponsoring agency. DS-2019 should be reviewed to determine work status Page 45

46 US employee outbound considerations The worldwide wages paid by a US employer to US employees who are US citizens and US residents is generally subject to federal income tax withholding, Social Security/Medicare and federal unemployment insurance An exemption from federal income tax withholding applies: Only if the employee completes, signs and returns Form 673 to the employer, and then: On the portion of wages exempt under IRC 911 (foreign earned income and housing exclusions) For US citizens only (and not residents), on the portion of wages subject to income tax withholding in the foreign country [IRC Code 3401(a)(8)(A)(i)] Page 46

47 Exercise Solution A US nonresident alien exempt under a totalization agreement and who provides you with a certificate of coverage is exempt from which of these US taxes? A. FICA B. Federal income tax? C. FUTA D. All of the above Page 47

48 Exercise - US inbound and outbound reporting and withholding A US nonresident alien exempt under a totalization agreement and who provides you with a certificate of coverage is exempt from which of these US taxes? A. FICA A. B. Federal income tax C. FUTA D. All of the above Exemption under a totalization agreement applies only to Social Security/Medicare. Federal income tax and federal unemployment insurance apply unless separate tests for exemption apply. Page 48

49 US outbound income tax withholding and reporting matters What can go wrong? How can we help? Employer liability for FICA and income tax it failed to withhold Failure to pay taxes required of the employer Failure to file returns and information statements Sanctions for reporting and tax payment errors Employee dissatisfaction from errors in proper at-source withholding Reputational risk Provide detailed federal, state and local filing and tax payment requirements for foreign employers Shadow payroll services for foreign employers with employment in the US Prepare original and amended returns and information statements File returns and make required tax payments We work together with other EY service lines when necessary to address issues that cross borders or US tax laws Page 49

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