Foreign Assignments for Tech Employees

As global mobility increases, tech employees are frequently assigned to work in foreign countries. These assignments bring unique tax challenges, as both the U.S. and the host country may tax various forms of compensation and benefits. Here’s what tech professionals and their employers need to know:

U.S. Tax Obligations

  • Worldwide Income: U.S. citizens and resident aliens are taxed on their worldwide income, regardless of where they work. This includes salary, bonuses, stock compensation, relocation packages, and assignment-related benefits.

  • Relocation Packages: Most moving expense reimbursements are considered taxable income for U.S. tax purposes, as the deduction and exclusion for moving expenses are suspended for nonmilitary taxpayers through 2025. However, if the reimbursement is for a move to a foreign country and the employee meets the bona fide residence or physical presence test, it may qualify as foreign earned income for the Section 911 exclusion.

  • Stock Compensation: Stock options, RSUs, and other equity awards are generally taxable when vested or exercised, regardless of where the employee is located at that time. The U.S. employer must withhold income tax on the portion attributable to both U.S. and foreign services.

  • Assignment Benefits: Housing allowances, cost-of-living adjustments, and tax equalization payments are typically taxable unless specifically excluded (e.g., under Section 911 for qualified housing costs). Tax equalization programs are common and are designed to ensure the employee pays roughly the same tax as if they had remained in the U.S..

  • Payroll and Reporting: Employers must report all compensation and benefits on Form W-2 and comply with U.S. payroll tax requirements. Totalization agreements may affect Social Security tax obligations.

Host Country Tax Obligations

  • Tax Residency: Most countries determine tax residency based on days present (often 183 days) or center of vital interests. Residents are taxed on worldwide income; nonresidents are taxed only on local-source income.

  • Income Tax: Employment income for services performed in the host country is generally subject to local income tax. Employees may need to file annual tax returns and pay estimated taxes. Employers may have local withholding obligations.

  • Social Security: Employees and employers are usually required to contribute to the host country’s social security system unless a totalization agreement allows continued coverage under the U.S. system for a limited period.

  • Other Local Taxes: Municipal, payroll, or state/provincial taxes may also apply depending on the host country.

Taxation of Relocation, Stock Compensation, and Assignment Benefits in the Host Country

  • Relocation Packages and Assignment Benefits: These are typically considered taxable income in the host country if provided in connection with employment there, unless a specific exemption applies under local law or a tax treaty.

  • Stock Compensation: Stock options and RSUs are generally taxed by the host country to the extent they relate to services performed there. The timing (grant, vesting, or exercise) and method of taxation depend on local law. The portion of stock compensation attributable to the period worked in the host country is often subject to local tax, even if granted before or after the assignment.

  • Tax Treaties: Many countries have tax treaties with the U.S. that may provide relief from double taxation or clarify which country has the primary right to tax certain types of compensation.

Best Practices

  • Track assignment dates and locations to determine tax residency and income sourcing.

  • Coordinate with tax professionals in both the U.S. and host country to ensure compliance and optimize tax outcomes.

  • Review tax treaties for relief from double taxation and to clarify taxing rights for complex compensation.

  • Maintain documentation for all assignment-related compensation and benefits.

Conclusion

Foreign assignments for tech employees involve complex tax considerations in both the U.S. and the host country. Understanding the rules for relocation packages, stock compensation, and assignment benefits—and how they are taxed in each jurisdiction—is essential for compliance and effective tax planning.

For more details on how to apply these to your situation, check the IRS guidelines or click Contact to schedule a call with a cross-border tax specialist.