Question: I was on an expatriated job assignment working overseas until January, 2011. I started a new expatriated job working overseas in February, 2011.
Which of my two employers is responsible for my 2010 tax returns and my 2010 tax equalization?
San Francisco, California
Answer: Dear Jerrold:
1. We must start with the presumption that it is you who are solely responsible for your taxes and tax returns. I don’t mean to sound trite, but your tax returns, and equalization of your tax liabilities between one country and another is, in the end, your responsibility. It is for this reason that we encourage our clients to make sure, if accepting an expatriate assignment, that they have a firm, WRITTEN commitment from their employer to be responsible for expatriate tax returns and expatriate tax equalization[For those readers who do not know what we mean by “tax equalization,” it is as follows: Suppose you live in the U.S. and your income tax rate is 35%. Suppose, too, that you work in another country where the local tax authorities claim you must file a tax return with them, and pay an income tax to that country, of 47% of your income. In fact, it is a real possibility that you may have to pay BOTH countries the taxes they demand. Ouch! By “tax equalization,” we mean someone preparing both countries’ tax returns for you, and paying you enough additional income so that, in the end, no matter who you pay how much tax to, how much you “take home” comes out “equal” as if you had remained working solely in the U.S. It is a complicated area of tax, and only a few large accounting firms do this kind of work. And it is very expensive. Tax equalization is an important benefit to request if asked to work in country other than your country of residence.]
2. It is possible, but highly unlikely, that the employer who began to employ you in February 2011 would have agreed to preparation of tax returns and tax equalization for 2010. While it is possible to negotiate anything, I have never seen an employer agree to be responsible for tax return preparation and tax equalization for a time period when you were not their employee. It just doesn’t make sense, unless you have presented some special reason why it may.
Look Before You Leap! We offer a Model Memo Requesting All Necessary Clarifications and Protections When Considering an Expatriate Assignment that you can adapt for your own use. “What to Say and How to Say It.”™ To get your copy, just [click here.] Delivered by Email – Instantly!
3. It is more likely, and hopefully the case, that your former employer has agreed to attend to these matters and pay the bills for the tax-related services you need. If you worked for your former employer for the entire year of 2010, it is quite likely that they have agreed to attend to tax preparation and tax equalization for that calendar year. However, that is not automatic, or to be presumed, unless you and they agreed on that point before you went on your expat assignment. I have seen many, many instances in which my clients have forgotten to ask for tax return preparation and/or tax equalization, but presumed it was to be provided for them. Or, sometimes they have accepted a spoken assurance that it would be provided, but have no written confirmation of that.
I’ve written a newsletter entitled “Expatriate Assignments: The 18 Mandatory Requests” that lists and explains the most important services and benefits to request if you are considering an expatriate work assignment. To read it, simply [click here].
Jerrold, thanks for writing in. We have helped many people who have taken expatriation assignments over the years, and we hope this helped you, too.
If you should have difficulties while on your expatriates assignment, we offer a Model Letter for an Expat in Dire Circumstances. To obtain a copy, just [click here].
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