Tax Equalization Agreement Sample

XYZ Corp owes Matt $US 11,859 to settle the final tax compensation obligation. Matt would be responsible for paying the $7,605 tax that is due with U.S. tax returns. Note that Matt does not benefit from the EEF, housing exclusion or foreign tax credit for hypothetical tax purposes. These tax benefits are attributable only to the transfer abroad and not for hypothetical tax purposes. Matt is not included in the calculation of the hypothetical income tax when transferring abroad. A tax equalization scheme includes an agreement under which the worker is entitled to certain net gains and/or non-factual benefits. The employer is committed to complying with the UK income and/or benefits tax and to providing a professional consultant or internal specialist in charge of personal tax issues in the UK. When an employer uses tax compensation calculations for a worker posted abroad, the employer assumes responsibility for paying the correct amount of taxes for the country of origin and host. The worker pays a “hypothetical tax” based on the tax rate, as if working in his country of origin, without allowances and benefits related to the transfer. This tax compensation relative to the country of origin guarantees a fair tax rate for the worker during the assignment.

U.S. expatriates can benefit from the policy with their employer to compensate for any potential tax disadvantage to work abroad. This agreement details the formula to be used in the assignment. The onus would be on the employer to withhold U.S. taxes in accordance with the compensation system and current tax rates. In the event that foreign taxes are also to be withheld, foreign tax credits and tax treaties between the United States and many countries are available to exempt double taxation. Matt and Wendy are responsible for the federal tax of 5,165 $US. As Matt is part of XYZ Corp`s tax equalization policy, this tax payment will be reflected in the “tax account” with XYZ Corp.(see discussion on tax equalization below).