Statutory Tax Assistance Methodology Provides Higher Level of Accuracy
Challenge: A client providing tax assistance utilizing supplemental methodology wanted to determine whether moving towards a statutory tax assistance policy would better serve the company and its transferring employees and help in attracting and retaining high-level talent.
The client’s current supplemental gross up methodology did not consider transferee income levels, nor did it provide tax assistance for OASDI should the transferee not reach maximum OASDI contribution levels.
The client was also unable to separate actual tax assistance costs from relocation costs for tracking, reporting, and budgeting, and was therefore unable to provide transferring employees with a year-end report of what had been provided in each category. As a result, these employees were unable to break out deductible expenses for their U.S. federal tax returns, thus losing the possible tax benefit.
Solution: MSI set up a tax policy to calculate statutory tax assistance for all relocation benefits paid to or on behalf of the employee for each calendar year. Relocation benefits were reconciled against the benefits included in the client’s payroll to ensure that net wages were matched appropriately and that supplemental tax assistance calculated by the client’s payroll system was compared to the statutory tax assistance calculated in MSI’s GlobePointe™ technology.
Result: MSI determined that 72 percent of the client’s relocating employees had been provided with excess tax assistance using the supplemental method. Had the client used the statutory methodology, it would have saved over USD 250,000 for the calendar year reviewed. The remaining 28 percent of employees — high level executives — were provided with less tax assistance than they would have received utilizing the statute method.
When the project was complete, MSI was able to provide the client with year-end tax impact statements for each employee, to be used in preparing their tax returns. Also, as the tax assistance process became more transparent, it significantly reduced the number of questions and complaints the client received.