Woman explaining taxation of equity awards to employee who is moving to another state

Best Practices for Communicating Mobility Taxation

July 14, 2022

As promised in the April blog on Eight Ways to Spring Clean Your Mobility Compliance, this quarter’s blog is about communications. Mobility taxation is complicated and nuanced. Furthermore, variations in stock plans, administrative practices, software systems, and employee policies may result in different companies taking different tax positions for otherwise seemingly similar employee situations. This can make communications with employees and stakeholders who had experience in prior organizations even trickier. The following best practices can help.

Have a Strategy

First, if you are implementing mobility compliance for the first time or expanding compliance to a new group (such as state-to-state movers), make sure you have a clear communication strategy. This way you avoid questions from employees who are confused about why prior transactions were taxed differently than those going forward. It is best not to admit prior noncompliance. Instead, take an approach along the lines that a new system is being implemented or new functionality has become available that will allow the company to strengthen its compliance practices.

Focus on Compliance

The focus of any communication should be on the company’s compliance obligations, i.e., the income the company will report and the taxes that will be withheld that are required by the various tax authorities. Employees will need to work with their tax advisors to determine the income they need to report, the taxes they owe, and their ability to claim tax credits. Employees are often required to report the income in all locations where they worked. The company’s compliance will strengthen the employees’ tax reporting but does not replace it. I often remind companies that they do not make the tax laws and therefore introducing mobility compliance is not placing an additional burden on employees. In fact, it helps employees meet their own obligations.

Expect Some Pushback

Any change in the tax withholding process will likely raise questions and, therefore, expect the most questions and pushback when mobility compliance is first implemented. Be prepared by having the resources available to help answer employee questions after the first equity transactions, and after the initial year-end when employees are preparing their first post-move returns.

Mobility taxation is complex and many employees, as well as their tax advisors, do not understand the rules and requirements well. I am often asked to provide statutory references or to discuss the situation with an employee’s tax advisor. I have never had a call where the employee’s advisor did not agree with the company’s position. Often there had been a misunderstanding due to the employee not comprehending the employer’s communication on the income allocations between work locations or miscommunicating the tax advisor’s questions. Sometimes the employee’s advisor is considering only the tax return aspects for the employee and not contemplating the company’s compliance obligations.

Don’t Forget Internal Stakeholders

Do not forget communications with internal stakeholders, too. This can be a topic of another blog (or book), but there are some key aspects I want to point out here.

Work closely with the payroll team to understand their system limitations. Some payroll systems cannot process multi-state taxation or require social taxable income to be the same as wage taxable income. It is best to understand these upfront to avoid collecting taxes that cannot be processed through the payroll system.

Communication with global mobility or the HR team is key. Not only do they need to provide good demographic data on a timely basis, but if they are working with the employee on the move, there are several key concepts they need to understand and communicate.

  • Corporate policies. I was involved with one call in which the employee was upset that the stock administrator did not apply for a tax ruling so the employee could avoid double tax withholding. My client had to explain that it was not her or the company’s job to do tax planning for the employee, in particular when the employee decided to make the move themselves. An upfront communication by the mobility team would have avoided putting my client contact in this situation and allowed the employee to take a proactive approach to tax planning.
  • Trailing tax liability. Every location where the employee resides or works during the life of the award may tax that award. This may lead to double withholding and, occasionally, double taxation.  
  • Timing is everything. While the company does not want to plan for employees, however, a move just before a RSU release or a stock option exercise can create a lot of work. In these situations, a short delay could make all the (tax) difference for the employee and the company.

Be Proactive

The gold standard is to provide employees information prior to a move so they can decide whether to proceed with a relocation. For those companies that do not have the resources to communicate these details for each move, giving employees a heads up of the general concepts, such as the potential of having to report and pay taxes in each country or state, is a good alternative.

  • By Marlene Zobayan


    Rutlen Associates LLC

Marlene Zobayan is a partner at Rutlen Associates LLC, a boutique consulting firm helping companies with their global equity plans and/or mobile employees.