Barrier: Inadequate gross up methodology, inability to fully break out tax assistance costs

Story: Providing a better tax assistance process for transferees can be made more challenging if you’re unsure which methodology is the best.

A client providing this assistance using supplemental methodology wanted to determine whether switching to statutory methodology would better serve transferring employees.

Its gross up methodology didn’t consider transferee income levels or provide social security assistance should the transferee not reach maximum contribution levels. The client also couldn’t separate tax assistance costs from relocation costs, which meant it couldn’t give employees the information they needed to deduct relocation expenses on their tax returns.

msi worked with the client to switch to the statutory methodology. Relocation benefits were reconciled against the benefits in the client’s payroll to ensure that net wages were matched appropriately.

Result: msi was able to provide the client with year-end tax impact statements for each employee, to be used for tax returns. Also, as the process became more transparent, there were far fewer employee questions and complaints.

Beyond this, however, there was another significant benefit. msi determined that some transferees – mostly high-level executives – hadn’t gotten enough tax assistance using the previous methodology. But most – 72 percent – had gotten too much. In switching to the statutory methodology, the client saved approximately $250,000 per year.