What Does the Cares Act Mean to Your Mobility Program?

With the signing of the Coronavirus Aid, Relief, and Economic Security (CARES) Act by President Trump, millions of Americans are looking forward to receiving their stimulus checks. However, will your relocated employees actually receive one? The stimulus checks are to be delivered to individuals who meet certain income conditions and is phased-out for individuals over certain thresholds.

What We Know
The CARES Act provides eligible individuals with an advance refund check equal to $1,200 ($2,400 for joint filers) plus $500 per qualifying child. If adjusted gross income (AGI) exceeds $75,000 ($150,000 for joint filers), the advance refund check is reduced until it is completely phased-out for those with AGI of $99,000 ($198,000 for joint filers). An individual’s most recently filed return will determine eligibility for receiving the advance payment. In most cases, this will be the 2018 tax return, although for some it will be their 2019 tax return (if it has been filed and processed by the IRS).

The advance refund check is being provided in anticipation of an individual’s qualification for the related tax credit on his or her 2020 tax return. If an individual does not qualify for an advance payment due to the income level on their 2018 return (or 2019 return), but otherwise would qualify based on their 2020 income level, the credit will be applied on their 2020 tax return against their 2020 tax liability.

It should be noted that if an individual receives an advance refund check but whose 2020 income is higher than the thresholds, the advance would be forgiven and not need to be repaid. Therefore, relocations or assignments starting in 2020 should generally not impact an individual’s ability to benefit from the stimulus.

Impact to Your Mobile Population
For your employees who were relocated in or were on assignment during 2018 (or 2019) and had all of their relocation costs and assignment allowances included in their 2018 or 2019 Form W-2, their income was inflated for the year (compared to their “stay at home” income – any compensation they would have received had they not been relocated). As a result, these individuals are likely to receive a reduced advance refund check or possibly no advance refund check and will have to wait to file their 2020 tax return to see if they qualify for any additional amount. If their 2020 reportable income is higher than it would have been in 2018 or 2019, then the loss of the benefit related to the stimulus payment will be a permanent loss to the individual.

For example, consider a married employee with two qualifying dependent children, a base salary of $100,000, and bonus of $50,000 in tax year 2018. The individual moved from the U.S. to France during the year and had total relocation costs and allowances imputed into his or her W-2 of $75,000. Assuming his or her spouse is not employed and is not considering other personal income, this individual has reportable income for the year of $225,000. At this level of income, the individual is not eligible to receive an advance refund check, since income is above the $198,000 threshold for joint filers. However, if they had not been on assignment in 2018, income of only $150,000 would have been reported on the 2018 tax return. As a result, the individual would be eligible to receive an advance refund credit check of $3,400 ($2,400 for joint filers plus $500 for each qualifying dependent child).

The situation becomes even more complex for any inbound employees to the U.S. The CARES Act states that for an individual to be eligible for the advance payment refund check, they must have a valid identification number. In this instance, a valid identification number includes a Social Security Number, but does not include an Individual Taxpayer Identification Number (ITIN). It is a very common situation for inbound families where only the actual working spouse has a Social Security Number while the non-working spouse and children would have ITINs while the family is in the U.S. under temporary visas.

Company Considerations
Since this stimulus payment is, in effect, an advance payment of a tax credit, a company must consider the cost impact to their mobile employee programs (domestic and/or international) like any other tax law change. Based on previous stimulus events and related reactions, it is likely that this stimulus event will create an increased cost to the company. In determining the effect to any impacted employee, the company should consider whether to wait until all information is known (i.e. upon filing of the 2020 tax return and related tax settlement calculation) or whether to review the mobility program population now.

If a company is waiting until the 2020 return is completed, special consideration should be made for employees who were involved in an active relocation or assignment in 2018 or 2019 but are not anticipated to be included on the company’s tax authorization list for 2020 tax return preparation.