In early 2020, employers worldwide had to respond to what could be the fastest social change in the modern era by enabling remote work for their employees almost overnight. What seemed to be a temporary evolution is now turning into the “new normal.” While COVID-19 continues to present new challenges, employers around the world continue to adjust and realize that remote working will, for many individuals, be their default working arrangement going forward.
COVID-19 has truly defined a new workforce reality with global mobility being a central player. Managing a mobile, multinational workforce is only getting more complex as companies are working to address tax, regulatory and compliance issues quickly and effectively amid a rapidly changing landscape. As companies begin to develop the framework for these arrangements, the attraction of remote working provides employees with new borders and the chance to explore opportunities to work where they please without having to be tied to a specific office. As the pandemic has continued to develop, so have the tax implications for both employers and employees with this new era of mobile employees.
However, individuals impacted by COVID-19 are eligible for relief as we detail below:
2020 Tax Year Considerations for Global Mobility Individuals Filing
Relief: COVID-19 and Days of U.S. Presence
Rev. Proc. 2020-20 applies the Medical Condition Exception to those “eligible individuals” detained due to disruptions associated with COVID-19. Present days are not counted if a person intended to leave the U.S. but was unable to do so due to a medical condition that arose while he/she was present in the U.S.
- Was not a U.S. resident at the close of the 2019 tax year.
- Was not a green card holder at any time during 2020.
- Was present in the U.S. for each day of the person’s “COVID-19 emergency period” (one single period of up to 60 consecutive days selected by the individual starting on Feb. 1, 2020 – April 1, 2020).
- Does not become a U.S. resident in 2020 due to days of presence outside the COVID-19 emergency period.
- Residency vs. non-residency is based on the substantial presence test.
- Regarding income from employment / dependent personal services, relief is allowed for a person who intended to be present in the U.S. for fewer than 183 days, thus qualifying for exemption from U.S. tax under the dependent personal services article of a treaty.
Relief: Foreign Earned Income Exclusion
Rev. Proc. 2020-27: Waiver of time requirements for qualifying tests.
The time requirements associated with the two qualifying tests (physical presence and bona fide residence) for the foreign earned income and housing cost exclusions may be waived during periods of 2019 and 2020 COVID-19 emergency (which is considered adverse conditions) and applies to anyone who left:
- The People’s Republic of China (but not Hong Kong or Macau) on or after Dec. 1, 2019, but on or before July 15, 2020.
- Any other foreign country on or after Feb. 1, 2020, but on or before July 15, 2020.
- This waiver may allow assignees who ended their assignment early due to COVID-19 to qualify for the Foreign Earned Income Exclusion. However, the relief does not re-source U.S. source income to foreign source income.
- Assignees who remain on host country employment contracts while back in the U.S. may be subject to withholding in both the former host country and the U.S., and in certain instances may be subject to double tax (e.g., China).
Our “new normal” will feature more remote work as employees demand it and employers see its wide-ranging benefits. This will require companies to create more structured and formalized policies that confront the complex issues that arise with a mobile workforce. Designing a “work from anywhere” program is just the beginning, and companies will likely need to invest and embrace this change to compete in today’s workforce. Companies should put processes in place to track where their employees are working and be able to address employee requests to work from anywhere. Regardless of what the future may hold, ensuring the right processes are in place will enable companies to be nimble and adaptable to whatever lies ahead. Companies that are proactive, innovative and bold enough to embrace this change may be the next generation of adaptors in this “new normal” we live in.