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New 2014 Global Mobility Tax New 2014 Global Mobility Tax

New 2014 Global Mobility Tax - PowerPoint Presentation

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New 2014 Global Mobility Tax - PPT Presentation

amp Payroll Issues Speaker David S Oltman oltmanrelotaxcom Title Chief Compliance Officer Ineo Relocation Taxes LLC Location Greater Cincinnati Relocation Council ID: 149339

000 tax 2014 gross tax 000 gross 2014 move state relocation amp irs rta taxes year form issues cost

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Slide1

New 2014 Global Mobility Tax

&

Payroll Issues

Speaker: David S. Oltman –

oltman@relotax.com

Title: Chief Compliance Officer

Ineo

/Relocation Taxes, LLC

Location

:

Greater Cincinnati Relocation Council

Date

:

Tuesday, March

4

th

, 2014

Time

:

8:30am ESTSlide2

Today’s

Speaker

David S. Oltman, CRPChief Compliance Officer Ineo, Company Co-Founder Relocation Taxes, LLC David S. Oltman is one of the relocation industry's foremost tax resources. David has brought his expertise and the strength of Relocation Taxes, LLC to the Ineo family of services. David now leads Ineo's Tax division, Relocation Taxes, and serves as the company’s Chief Compliance Officer. Prior to joining Ineo, David co-founded Relocation Taxes, LLC and The Hessel Group U.S. and U.K. in 1987. David began his relocation career as the Manager of Benefits Administration and Relocation at Ciba Geigy/Novartis Corporation.He is a member of The International Foundation of Employee Benefits Plans and The Employee Relocation Council, and co-founder of the Relocation Council of New York City. David has been quoted in many publications including The New York Times, The Wall Street Journal and Money Magazine.David is an ERC Meritorious Service Award winner. David holds a B.A. in Human Resources and an M.B.A. in Finance.Contact Information: oltman@relotax.com or 203-529-3020 – fastest response via e-mailwww.ineotech.com and www.relotax.com Slide3

Agenda – Learning Objectives – At the completion

of the session, you

should know: What the new 2014 relocation tax laws are and how they affect your companyNew 2014 gross-up methodologies - how your company can save money. Tax Reconciliation Requests Up SignificantlyWhat gross-up and “keep the transferee whole” really mean – AMT issues1099’s, 1098’s, W-2’s and W-2C’s – pros, cons and complianceHow Payroll reporting and taxation of relocation reimbursements are handledWhy temporary assignments are the hottest issue in 2014H.R. 1129 and S. 3485 – potential New 30 day state tax withholding rules effective in 2014 or 2015FICA $117,000 (6.20%) withholding issues/paybacks and the cost of forgiveness

– best practice to recapture

Tax coding/relocation accounting /compliance IRS expense reporting issues

State taxes and how they effect the gross-up calculation – multi-state tax/gross-up issues

Hot 2014 policy trends, 10 things every transferee should know before moving

First Time Home Buyers Tax Credits, $8,000 and $6,500 – gross-up ramifications - Paybacks

2014 Short Sales and the tax impacts of forgiveness

IRS audit targets – relocation red flags

New 2014 Higher Medicare Rates 2.35% (1.45% & 0.90%) and 3.80% and the relocation effects

New phase out of Personal

E

xemptions and Itemized Deductions – most transferees will be under grossed-up

New IRS Form 8938 – Foreign Financial Assets Form – Required by many transferees

FinCen

114 Form - Reporting of Foreign Bank Financial Accounts – must be e-filed - relocation impactsSlide4

New

2014 Corporate Tax & Payroll

Issues Tax Credits lost on tax returns – Education Credits and American Opportunity Credits – IRS Form 8863 (Phase-out range “Single” $80,000 - $90,000 and “Married Filing Joint” $160,000 to $180,000), Child Tax Credits ($110,000, $130,000, $150,000…). See RTA p. 11. Repayment of Home Buyer Tax Credit – IRS Form 5405 if moved again within 3 years. All these issues can effect the transferred employee by several hundred dollars, to several thousand dollars, to well over $10,000+. See RTA p. 44.Recommendation: Only after doing a complete gross-up audit in 2014 of the employee’s 2013 tax return. Cost usually between $275 to $425 per audit.* Turnaround time usually only one or two days. The importance of proper tax preparation can not be over stated. For example a FL to OH move – and not allocating state wages properly. Requests for gross-up audits/tax reconciliations should increase significantly in 2014. *Business Expense. Not taxable.Slide5

1)

AMT

Tax (Alternative Minimum Tax) effects – could effect 10 times more taxpayers, “Target” result is the corporate transferee. (higher gross-ups). See RTA p.10 & page 442) All Tax Brackets where indexed for inflation (significant higher gross-ups in 2014 – average was 60% - they will be higher in 2014 & 2015 – closer to 70%+) See RTA p.11. Brand new phase-outs of itemized deductions brought back in 2013. In 2014 the 2% and 3% phase outs are back . 2014 higher tax rates – gross-up impact - over 85%+ gross-ups for “executive” moves.3) How states are catching employees who do not report their wages. Tax Amnesty. Hotel & credit card gas receipts. IRS Employment Tax Audits Begin in 2010 and will run through tax year 2014. A significant number of audits have been started.4) New State Sales Tax Deduction – Applies mainly to transferees in nine (9) no income tax states. AK, FL, NV, NH, SD, TN, TX, WA & WY (lower gross-ups) See RTA p.12 Average savings of $600 per move.5) Reduced Home Sale Exclusion & New Home Buyer Tax Credit ($8,000/$6,500). Very complex. See RTA – p.44 IRS Form 5405 – plus new “Repayment Letter” being sent by IRS based on address changes. If house turned into rental – credit must be repaid.New

2014

Corporate Tax & Payroll Issues Slide6

2013

&

2014 Federal Tax Limits and Thresholds    20132014Value of Exemptions:$3,900$3,950Child Tax Credit:$1,000$1,000Social Security (OASDI):$113,700 6.20%$117,000 6.20%Medicare: $200k/$250k/$125k 1.45%+ if> 2.35%

$200k/$250k/$125k 1.45%+ if> 2.35%

Supplemental Rate:

25% / 39.6% if over 1 million

25% / 39.6% if over 1 million

Business Mileage Rate:

$0.565 / mile

 

$0.56/mile

 

Final Move Deductible Rate:

$0.24 / mile

$0.235/mile

 

 

 

Standard Deduction

:

SNG

$6,100

$6,200

 

MFJ

$12,200

$12,400

 

HH

$8,950

$9,100

 

MFS

$6,100

$6,200

 

 

 

Exemption Phase-out

:

SNG

$250,000

$254,200

*For each $2,500 ($1,250 MFS)

MFJ

$300,000

$305,050

that AGI exceeds the threshold 2%

HH

$275,000

$279,650

of exemption value is lost.

MFS

$150,000

$152,525

 

 

 

Itemized

Ded

. Phase-out

:

SNG

$250,000

$254,200

*For each dollar that AGI exceeds

MFJ

$300,000

$305,050

Threshold,, 3% of itemized.

ded

. is lost.

HH

$275,000

$279,650

(limit of 80% of deduction lost)

MFS

$150,000

$152,525

 

 

 

Child Tax Credit Phase-out*

:

SNG

$

75,000

$75,000

* For every $1,000, or fraction thereof,

MFJ

$110,000

$110,000

that AGI exceeds the threshold, $50 of

HH

$75,000

$75,000

the child tax credit is lost.

MFS

$55,000

$55,000Slide7

2013 & 2014 Federal Tax Rates and Gross-up PercentagesSlide8

Temporary Assignments – 1 year rule – business vs. taxable. See RTA pages 8 & 9 also Revenue Ruling 93-86. New Trend to “reconcile” state taxes – “Keep Employee Whole For State Income Tax ”. New Proposed Tax Bill – H.R.

1129 & S. 3485 –

“30 Day Rule” (was H.R. 1129 & 3359 & 2110 - 60 day rule). “Mobile Workforce State Income Tax Fairness and Simplification Act”. The methodology used is to calculate what the employee “would have paid” in Federal and State/Local taxes (in the “live state”) – then compare that amount to what the employee “actually paid” in Federal and State/Local taxes (in the temp. “work state”). The difference between those two amounts is the amount due the employee. Issues to consider: a)    Any State income tax dollars that were “advanced” or “loaned”b)    The taxability of “advances” or “loans”c)    Multi-state tax credits taken or not taken on state tax returnsd)    Non-Resident and Part-Year Resident state tax returnse)    Administration of the program – “loans”, “advances” and “repayments”* Proposed Effective Date 1/1/2015 – See RTA p. 132014 Hot!!! Federal & State Tax IssuesSlide9

2014 Tax & Payroll Issues

Global Assignments – Stealth Expatriates – tracking issues.

See RTA pages 14 thru 19.E-Solutions – New trends – Lots of software on the market – average cost $50 - $75 per move. From Gross-ups to Int’l Hypo Taxes, to Lump Sum software.US Government (WITA/RITA) - Sen. Grassley - GRAB. See RTA pages 38 & 39Capital Losses on home sales are NOT deductible. See RTA page 2The Mortgage Forgiveness Debt Relief Act. “Short Sales” no longer taxable, Negative Equities and Loss on Sales.IRS Revenue Ruling 2005-74 (updates 72-339) – Corporate home sale procedures clarified. Third Party home sales NOT taxable.First Time Homebuyers Credit: $8,000/$6,500 (MFJ $225,000; SNG $125,00) start of phase out range. Three year pay back period. See IRS Form 5405 Very complex. Three (3) year payback provision. IRS has just started sending out repayment request letters, to employees who have “changed their address” or “moved” or have “rented their house”.Commuters – Expenses & Salary taxable in both “live” and “work” states.Same Sex Marriage Status – IRS Rev. Ruling 2013-17. Generally speaking, same sex couples will be treated as married for all federal tax purposes.Average Gross-up Percent’s – Will most likely go from 60% to close to 90% based on the new 2014 and proposed 2015 tax changes.Slide10

RTR - "Relocation Tax Report" - replaces old "IRS Form 4782“.

See RTA p. 25

3903 - "Moving Expenses" - taxpayer required. See RTA p. 29Sch. D - "Capital Gains and Losses" - replaces old "IRS Form 2119“New Form 8938 – Similar to TD F 90-21.1 – Report Foreign Bank Accounts and Interests, >$10k, or $50K or $100kNew 2014 Federal, State, Local and F.I.C.A. rates. The 2014 FICA Limit is $117,000 and 6.20% OASDI (Social Security) and 1.45% Medicare. New 2014 Medicare Rate increases to 2.35% if over (Single $200k, MFJ $250k) and a new 3.8% tax on unearned income***. Complex calculation. States that follow the pre-1994 "rules" allowing the final move meal deduction / exclusion. NJ* / PA*** Allows only a 100% exclusion of Final Move Meals on NJ-1040** Allows a 100% deduction of Final Move Meals on PA-40R-UE-1*** Request for gross-up audits/tax reconciliations will increase significantly due to new higher Medicare rate and new phase outs of deductions & exemptions – approximately 80% of all moves will be affected.IRS 2014 Tax Forms & and New Medicare RatesSlide11

Penalties for Failure to Withhold Taxes on a Timely Basis

Most all relocation expense reimbursements or supplemental wage payments are subject to withholding

at the time of payment. Most companies use the Supplemental rate of 25% and apply a gross-up percentage. Accountable Plan rules apply, using the 30/60/120 rule. Taxable moving expenses (lump sums) are treated as if they were paid under a "non-accountable" plan. An average penalty of $8,000 per move could cost a company that relocates 200 employees per year, 1.6 million dollars for each year of non-compliance. Slide12

(

1) When ever possible, always look for a business purpose for an expense. For example, Moves less than 1 year (temporary assignments), a Pre-employment physical, House Hunting Trips as business trips (breakout spouse expenses). Use a TP Home Sale Company or Qualified In-House Program.

Tax Gross-up Savings over $9,000 per move. (2) Have trained accounting/relocation tax expense professionals tax code and audit all expenses entered from the transferee's expense report. Average cost savings is several thousand dollars per move. Average cost to audit $50 per file. (3) Do not include either Van Line or Final Move expenses in a "Lump-Sum" allowance. Why? Because not taxable when receipts are provided. Employees can still deduct their moving expenses even if they receive a lump sum that is taxable and grossed-up. Lumps Sum Software $50 to $75 per move. (4) Re-capture any FICA overpayments – Year-end “true-up” – only adjust for “negatives” differences. Tax Gross-up Savings over $1,000+ per move. (5) Explain/Educate employees with regard to how their gross-up was calculated. Priceless!!!!!Tax Saving Strategies (Withhold/Gross-up)Slide13

Year-end “true-up” or “difference” or “delta” calculation. Negatives only “adjustments”. Big savings in gross-ups Average gross-up is over $10,000.

(Average savings over $2,000 per move

).Only gross-up at supplemental rate [ 25% ], let transferees come back and request more. Gross-up Audit after the fact. (Average savings over $1,000 per move).Companies now paying for Domestic Tax Return preparation included as a relocation benefit. Saves company’s significant time and money – both hard and soft dollars. $900+/-Companies now paying for a “pre-move tax consult” - $350Lump Sums – Very popular, software is available. $50 - $75Expense Management Audits – Relocation Accounting Audits. (Average costs $425 per audit or several thousand dollars to audit a “batch” of records).Reconcile State Taxes for employees who go on a temporary assignment or Commuter assignments. Gross-up wages for extra state taxes when needed. Gross-up Audits – for AMT, Home Buyer Credit and Other Lost Credits. Cost $425 per move.

New 2014 Policy Language Required

: “Gross-up

audit/tax reconciliations will only consider

company income

with regards to determining the appropriate tax bracket,

only credits

truly

lost,

based on the actual tax

return,

will be considered.”

Hot

!!!

2014 Relocation TrendsSlide14

1) Income will be inflated due to moving expenses paid by your company. Make sure that federal and state withholdings are sufficient to cover the increase. Also, the year after the move, most transferees are more likely to be under withheld. If in doubt, contact your tax advisor. See RTA p.7 Also, If your company paid your Van Line bill, you can

NOT

deduct it on IRS Form 3903. If you rent out your house, you will have to repay the Home Buyer Tax Credit – Usually $8,000.2) Make sure that a state W-4 form has been prepared and given to your payroll department so that withholding is being taken out in the proper state. YOU ARE REQUIRED TO HAVE WITHHOLDING TAKEN IN THE STATE THAT YOU WORK IN, EVEN IF YOU ARE A RESIDENT OF ANOTHER STATE! This should become effective the first paycheck received in the new place of employment. See RTA p.7, 12 & 133) In addition to the state, your new city may also require tax to be withheld. Review your first pay stub to make sure that this is being done (if applicable). See RTA page 124) Keep in mind that excess FICA withheld from two or more employers is refundable, Line 69 IRS tax form 1040. Affects both working spouses.5) You have up to two years to satisfy the time test, to establish permanent residency, in order to deduct moving expenses.10 Things Every Employee Should Know Before Considering a MoveSlide15

10 Things Every Employee Should Know

Before

Considering a MoveSpecial costs, that are unique to you, are also deductible as moving expenses such as pets, horses, aquariums and tips paid to “movers & packers. No limit on the number of cars that can be moved and deducted. Rental Losses can be carried forward. See RTA p.4The cost of moving students, from their college to the new location, is deductible.In the year that you move, remember that any non-amortized points on a refinanced loan can be deducted if you sell your house. See RTA p.8Premature distributions from pension plans are not only taxable as income but incur a 10% penalty unless rolled over within 60 days. There is often a misconception how the rules for first time homebuyers work. Also in the year of a move, income is inflated and this is probably not a good time to take an early distribution.10) The year after the move, significant potential for under withholding penalties exist. It could be hard to meet any of the safe harbor rules: Owe<$1,000, or pay at least 100% of last year’s liability, if AGI is >$150k, then pay 110% of last years liability. See RTA p.7Slide16

Common mistakes CPAs make with transferees' tax returns with regard to “Keeping The Transferee Whole"

The

tax return is prepared incorrectly!!!. Excludables (W-2 Box 12 – Items preceded by the letter “P”) are not properly reported and carried forward to the 1040 Federal tax return. IRS Form 3903 “Moving Expenses” is not completed properly, or not at all. Points / Loan Origination fees are not deducted properly on IRS Schedule A. Part year and non-resident State Tax Returns are not completed properly, or not at all. Accountant is not familiar with the company's relocation tax gross-up policy. For example, what expenses are Grossed-up and which expenses are not subject to tax assistance.Other income (spouse income) is used to establish tax brackets both "with" and "without" the move.(4) Points and Mortgage Interest are deducted both "with" and "without" moveGross-up Audits – With/Without Move AnalysisSlide17

(

5) State and Local Gross-up tax dollars are deducted "with" and "without" the move

.(6) Recapture Excess FICA taxes Withheld.(7) Rental Losses can be carried forward.(8) Improper Deductions are taken on tax returns.Comment: If the transferee "partially loses the benefit of their Standard Deduction", or the new “General Sales Tax Deduction”; in other words, is forced to itemize; the transferee has been adversely affected. For example, the maximum "Standard Deduction Loss" exposure: Standard Deduction Married Filing Jointly $12,400 (MFJ) .25% $ 3,100 "Extra Tax Owed Because of Move“Additionally, transferee’s who exercise stock options, have rental properties, AMT and generally more complex tax issues should consider having “professional” tax preparation and review” by trained relocation tax experts.Gross-up Audits – With/Without Move AnalysisSlide18

2014

GROSS-UP DECISIONS YES/NO Additional Cost Per Move*Use Tax Tables _____ Several Thousand DollarsState Taxes _____ Moved To/From / Both? $1,000 Include Fed. in State _____ $350 Local Taxes _____ $150 F.I.C.A. Taxes _____ SS / Med. / Both $1,200F.I.C.A. Circular Logic _____ $450Money Saving Gross-up Policy Decision OpportunitiesSlide19

2014

GROSS-UP DECISIONS

YES/NO Additional Cost Per Move*Deduction/Exempt. Phase-out ____ $500 - $2,000+ (phase-outs)Assume Itemized Deductions ____ $600 (New GST) Gross-up "Unqualified" Moves ____ $5,800Misc. Expense Allowance ____ $4,000COLA / MIDA ____ $6,000 $0.56/$0.235 cents per mile ____ $150

Loss on Sale ____ $10,000 to $50,000+

AMT, WPC, First Time HB Credits ____ $1,000 - $20,000+

Annualize New Hire Salaries

____

Several Thousand Dollars

Money Saving Gross-up Policy Decision OpportunitiesSlide20

Money Saving Gross-up Policy Decision Opportunities

2014

GROSS-UP DECISIONS YES/NO Additional Cost Per Move*Look at Non-itemizers (Renters) ____ $600+ Economic Stimulus Package ____ $0 to $3,000+ Third Party Home Sale Company ____ $9,000 Other ____ 60% of Benefits Paid - Commuters 90%+ for executives The dollar amounts presented are estimates only. The actual dollar amount will vary based on the total cost of the move, what state is used for tax purposes, and of course the company's relocation tax gross-up policy.* Savings documented well over $2,000 per move. 

Copyright

Ineo/Relocation Taxes, LLC

2014

David S. Oltman

oltman@relotax.com

Direct Line (203) 529-3020

www.relotax.com

or

www.ineotech.com