Year-End Mobility Compliance Checklist for Equity Awards

Year-end can be busy and stressful for many companies and, as we are heading into November at the time of this writing, it will be here sooner rather than later. There are several year-end tasks stock administration departments can undertake related to mobility compliance that could minimize employee questions and wage statement corrections in 2026. These should be undertaken in conjunction with, and not as a replacement of, your regular year-end equity compensation processes.

Mobility Data

Align Internal Information on Mobility

Alignment of mobility information across all of a company’s systems—including HRIS, payroll, and stock administration—is important. Unfortunately for some companies, this may be a manual undertaking. Ideally cross-checking mobility data should take place on a regular basis, say before each RSU vest or on a quarterly basis. If the data has not been reviewed during the year, at a minimum, a year-end review is necessary. This should allow time for the company to correct any errant information and help reduce the number of wage statement amendments (e.g., W-2Cs for the United States) that the company may have to do next year.

Companies whose HRIS, payroll, and stock administration systems are integrated may find this an easier task to undertake. By surveying the employees, as noted below, to verify demographic data, unreported updates can be dealt with before the year end.

Survey Your Employees

Employees do not always review pay slips during the year, and often only notice where income was reported when filing their tax returns. Surveying employees in the fall generally allows adequate time for a company to take corrective measures before year-end.

Several of my clients inform their mobile employees around this time of year, the countries and states they will be reporting income to, so the employee has an opportunity to review and request corrections before closing out the year.

Reporting of Equity Income

Check Whether Each Payroll Has Recorded All Equity Income

It is important to confirm that each payroll has captured all equity income for each pertinent participant, even for those employees who are not mobile. The country allocation for mobile employees should be included in this confirmation.

In addition to including the trailing tax liability for mobile employees in an annual wage statement, most countries would require the inclusion of mobile employee stock awards in any annual reporting. Be sure to consult with your advisors as to whether the full income should be included in such reports or the country sourced portion. The answer could differ based on whether the individual is a full-year resident or a part-year resident in that country.

Review De Minimis Limits

To avoid allocating and reporting small amounts of income to a prior location (one company told me they had allocated $2.25), many companies have implemented a practical de minimis limit below which income is not allocated to a nonresident location. Most companies pick an income amount, some a tax amount, others a number of shares amount to set their de minimis thresholds. If the allocation is below the de minimis level, then there is no allocation across jurisdictions, instead the income is assigned to the current country or state.

Now is a good time to review your de minimis limits to see if they still make sense. For example, one of my clients had a 50-share limit below which they did not allocate the income across countries or states. This worked well initially as their share price was $25 a share. However, as their stock price increased, this practice led to large amounts being left unallocated, resulting in unnecessary risk and exposure.

US Qualifying Plans

Incentive Stock Options Exercises by Mobile Employees

When an employee with an incentive stock option transfers from the United States to another country, all else being equal, the ISO does not lose its tax qualifying status. The employee can still receive US tax favorable treatment even though this treatment may not extend to the other country where they are now resident. The applicable US reporting of exercises and disqualifying dispositions still apply. See “How Employee Mobility Affects Taxation of ISOs and ESPPs.”

3921/3922 Filings

These filings are “all or nothing.” The number of shares reported for mobile employees are not prorated for these filings. Forms 3921 and 3922 are not required for employees who meet both of the following criteria:

1. The individual is a non-resident alien for the entire calendar year (i.e., resident outside the United States for the year and who is not a US citizen or green card holder) and
2. The company is not required to issue a W-2 for the individual from the date of grant to the date of exercise.

This exception is very narrow. If the company is required to issue 3921 or 3922 for the individual, then the full number of shares should be included.

Section 423 ESPP Income Reporting on W-2

The income from mobile employees’ ISO exercises and ESPP purchases should be pro-rated for W-2 reporting purposes. Obviously for an ISO this would only occur if there was a disqualifying disposition.

One tricky aspect is the W-2 reporting on the sale of shares acquired through a Section 423 plan with a discount, which occurs regardless of whether there is a disqualifying disposition. The sale could take place many years after the purchase occurred.

For mobile employees, the company should allocate the income based on the employee’s work location between the start of the offering period and the purchase date. Even if the company does not typically apply mobility to ESPP, (many companies choose to focus their resources on larger exposure awards such as stock options and RSUs).

Care should be taken not to inadvertently subject an employee to tax where it was not needed. 

For example, a US expatriate was assigned to Ireland for several years, breaking California residency. The individual participated in the Section 423 ESPP during his time in Ireland and made several purchases under the plan. He sold some ESPP shares while still in Ireland. He then relocated back to California midyear. The company did a year-end survey of ESPP dispositions and reported them to payroll based on location at year-end. This individual could have ended up paying California taxes on the ESPP income even though the entire transaction took place while he was California non-resident.

To avoid similar situations, consider reporting ESPP income based on where the individual worked during the purchase period and conduct disposition surveys frequently throughout the year.

Start Planning For 2026

Mobility compliance for many companies is an iterative process. Companies typically start with their biggest exposure(s) and widen the compliance net going forward. Consider your company’s next biggest exposure and make a plan for compliance.