On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law by President Trump and includes provisions applicable to individuals and also impacts multinationals with mobile employees. In particular, the CARES Act provides eligible taxpayers with an advanced tax credit (or “rebate”). The amount of the credit is $1,200 ($2,400 in the case of eligible individuals filing a joint return), plus $500 per qualifying child subject to certain limitations.
The rebate is actually an advance payment of a tax credit to be claimed on the 2020 income tax return but is computed and advanced based on the taxpayer's 2018 or 2019 adjusted gross income (AGI), as appropriate. If an individual's 2020 income is higher than the 2018 or 2019 income used in the computation, there is no payback of any excess rebate required even if the individual would not have qualified for the rebate using 2020 AGI. On the other hand, if the eligible individual's 2020 income was lower than the 2018 or 2019 AGI used to compute the rebate amount, the eligible individual can claim a credit equal to the excess over what was previously advanced when the 2020 return is actually filed. If an individual is not eligible for the advance but then becomes eligible in 2020, the individual should be able to claim the credit when filing his or her 2020 return.
The rebate will be available for U.S. nationals and green card holders residing abroad as well as for certain foreign nationals who qualify as U.S. tax residents. However, the process one must follow to actually receive the rebate may be cumbersome for a mobile workforce. For example, if an expatriate eligible for a rebate listed no U.S. bank account information on his or her 2018 or 2019 U.S. tax returns, the IRS will mail a check to the taxpayer’s address on file. An overseas address could result in significant delays. Aware of these concerns, the IRS has announced that it will provide a web-based tool so individuals may provide their current banking information in order to receive a direct deposit. The tool will also provide individuals with the status of their payment, including the date their payment is scheduled to be deposited into their bank account or mailed to them. Taxpayers who wish to receive a check in the mail should provide the IRS with their current address especially if they wish to use an ‘in care of’ address.
The rebate provisions of the CARES Act will likely impact employers with globally mobile employees. The following frequently asked questions will help employers navigate through key issues relevant to an expatriate program and addresses some related considerations:
Q: Who is eligible for the rebate?
A: An "eligible individual" for purposes of the rebate means any individual other than a nonresident alien individual, an individual treated as a dependent, and an estate or trust. U.S. green card holders, whether or not living in the United States, should be eligible. Individuals who have no income, as well as those whose income comes entirely from non-taxable means-tested benefit programs such as supplemental security income (SSI) benefits, are eligible for the rebate. In some instances, some individuals who did not file a 2018 or 2019 US tax return may still receive the advanced credit based upon their social security benefit statements (Forms SSA-1099 and RRB-1099).
A child under 17 who qualifies for the purposes of the Child Tax Credit would also be a qualified child for the purposes of the rebate.
Q: Is a Social Security Number (SSN) required?
A: Only taxpayers with SSNs are eligible for the rebate and this extends to the spouse and any qualified child. Individuals who have an Individual Taxpayer Identification Number (ITIN) are ineligible. A married couple in which one spouse has a SSN and another has an ITIN will not be eligible for the advanced credit. Adoption Taxpayer ID Number (ATINs) will be accepted for adopted children.
Q: Are there limitations based on an individual's AGI?
A: The rebate will begin to phase out at a rate of 5% of AGI exceeding $75,000 for an individual taxpayer ($150,000 for married couple filing joint returns and $112,500 for head of household filers). The advanced credit is completely phased out for single taxpayers with no qualifying children if their AGI exceeds $99,000, ($198,000 for a married couple filing jointly with no qualifying children and $146,500 for head of household filers with one qualifying child).
Most individuals will not have to take any action as the payment will be based upon the taxpayer’s latest return filed (i.e. 2019 tax return and if not filed, 2018 U.S. tax return).
Q: How and when will taxpayers receive the rebate?
A: If the taxpayer provided direct deposit information with his or her 2018 or 2019 tax returns, or via the IRS web tool, the IRS will issue payments electronically. If the taxpayer provided no direct deposit information, the IRS will mail checks to the address it has on file.
While uncertainty remains as to when exactly the rebates will be paid out, the Act provides that the rebate or advanced credit will be made or allowed before Dec. 31, 2020.
Q: What should an employer with an international expatriate program be aware of?
A: U.S. resident employees on assignment abroad may be ineligible for the rebate due to the materiality of the additional benefits and allowances paid on the employee's behalf as a result of the assignment. As these amounts are required to be included in the assignee's U.S. taxable wages, his or her AGI may exceed the specified threshold, effectively eliminating or reducing the rebate available if he or she were not on assignment.
Certain assignees repatriating in 2020 who were ineligible for the advance payment because assignment related compensation increased their 2018 and/or 2019 AGI over the specified threshold may be eligible for the advanced credit when they ultimately file a 2020 U.S. tax return.
Employees on assignment who claim the foreign earned income exclusion on a U.S. tax return may actually qualify for a higher rebate as a result of their assignment because this exclusion reduces AGI.
Q: How should multinational companies address the rebate in their global mobility program?
A: An employer can address the lack of or excess rebate for a U.S. based assignee immediately through the preparation of a revised 2020 hypothetical tax calculation, reduction in hypothetical tax withholding and/or later on when reconciling the employee's cash flow situation through the preparation of the 2020 tax equalization calculation (to ensure that the employee's cash flow is not negatively impacted as a result of taking the assignment).
Employers should determine what their policy should be for foreign nationals resident in the U.S. who are eligible for the rebate and tax equalized to a non-U.S. jurisdiction. In such situations, they may need to review whether the employee would have benefited from a rebate or similar COVID-19 relief measure should they have remained a tax resident in their home location, which may require the employer to become familiar with a relevant relief provision available under foreign law.
Q: What actions should multinational employers take now if they have U.S. resident employees who are on assignment overseas and tax equalized?
A: Multinational employers should issue a communication to their employees clarifying the approach that they intend to follow so that employees are kept well informed and expectations are made clear early on. Employers should consult with their tax advisors to assist them by providing policy recommendations and disseminating that information to assignees.
There is no one-size-fits-all approach to handling the issues discussed here. Our professionals can guide your program and its employees through the nuances of the complex and unique tax issues presented by the coronavirus and its relief measures. It is imperative that global mobility programs continue to modify and develop their policies and procedures in consideration of the current climate so that employees on international assignments feel supported every step of the way.
If you have any questions or require advice, please contact us.