United States: Will your mobility costs increase as a result of the net investment income tax?

Global Watch ()

The ‘new’ Net Investment Income Tax (NIIT) could have a financial impact on global mobility programs. Also known as the Unearned Income Medicare Contribution, the NIIT went into effect January 1, 2013, affecting tax years beginning on or after this date. US resident individuals with higher incomes may owe this new tax, if applicable, on passive-type income (e.g., interest, dividends, capital gains, etc.) starting with their 2013 US federal income tax returns and any applicable estimated US federal tax payments. Globally mobile individuals assigned to work in the US and abroad are potentially liable for this new tax levy.

What costs associated with the NIIT may impact your mobility program? The devil is in the details and the answer to that question is surprisingly unclear. Cross border issues layer on various complexities and multiple questions arise as to how the NIIT should be calculated. Although general guidance about how the tax is calculated is available - Section 1411 of the Internal Revenue Code (Code), which levies the NIIT, provides a core set of parameters and the Internal Revenue Service (IRS) has also issued proposed regulations and Frequently Asked Questions (FAQs) - but unfortunately this guidance does not provide clarity on various open questions in the international arena.

In response to this uncertainty, PwC submitted comments to the IRS on August 1, 2013 for consideration when final regulations are promulgated. The IRS then issued a draft form (Form 8960, Net Investment Income Tax- Individuals, Estates, and Trusts) the following week providing some insight as to what the IRS may have envisaged for the NIIT prior to consideration of comments.

What should mobility professionals do now while waiting for additional guidance? Take a proactive approach, review their policies, and think about how the resolution of these open issues may impact processes and budgeting for tax reimbursement and gross-up related costs. The purpose of this Global Watch is to provide a high level summary of some of the situations that may require further guidance, helping multinational employers hone in on the possible impacts.