Go Back  British Expats > Living & Moving Abroad > USA
Reload this Page >

Tax benefit if employer rents home for L1 employee for 2 years

Tax benefit if employer rents home for L1 employee for 2 years

Old Nov 6th 2019, 7:23 pm
  #1  
Forum Regular
Thread Starter
 
Joined: May 2018
Posts: 55
Mic1 is an unknown quantity at this point
Default Tax benefit if employer rents home for L1 employee for 2 years

Hi all,

Been over a year since i last posted. Was all set to move over to the USA to head up the opening of a subsidiary last year but the mother company decided to put the project on hold due to business opportunities in another region. Everything is back on track now though which is good.

Quick questions, i'll be moving on an L1 but have no intention of selling my UK home in Surrey, at least not until my family and i decide that the USA is for us.....long term. We have two young daughters.

My employer is toying with the idea of renting a house on my behalf for the initial two years but can't seem to nail down the tax advantages (or disadvantages) to myself and/or themselves. Obviously it means that they would be able to pay me a lesser salary. We're looking at a rental budget of circa $3500 PM, (not inc utility bills, HOA's etc). They are set on paying for medical cover to the tune of around $24k PA and i'd be furnished with an all expenses paid vehicle, probably leased.

Anyone been in a similar situation? My only real concern is that i'd struggle to build any real credit history with this arrangement if i did decide to sell our UK residence, move the money across and take out a small (ish) mortgage.

Many thanks

Mic
Mic1 is offline  
Old Nov 7th 2019, 11:47 am
  #2  
Often not so civil...
 
civilservant's Avatar
 
Joined: Apr 2010
Location: The Boonies, GA
Posts: 7,156
civilservant has a reputation beyond reputecivilservant has a reputation beyond reputecivilservant has a reputation beyond reputecivilservant has a reputation beyond reputecivilservant has a reputation beyond reputecivilservant has a reputation beyond reputecivilservant has a reputation beyond reputecivilservant has a reputation beyond reputecivilservant has a reputation beyond reputecivilservant has a reputation beyond reputecivilservant has a reputation beyond repute
Default Re: Tax benefit if employer rents home for L1 employee for 2 years

Renting isn't going to build any credit history anyway. Medical coverage is standard for the US, but you need to look into the coverage details, copay, deductibles etc.

You're going to need 2 cars, so one will need to be bought - and theres nothing stopping you getting a credit card or 3. You will be able to build credit over time.

Having items paid by your employer will have real tax implications, so they should pay for a tax professional for the first 2 years at least.
civilservant is offline  
Old Nov 7th 2019, 3:30 pm
  #3  
Just Joined
 
Joined: Apr 2012
Location: NoVa
Posts: 6
scaly back is an unknown quantity at this point
Default Re: Tax benefit if employer rents home for L1 employee for 2 years

Hi Mic,
I was on something similar. My employer put me on a scheme called 'tax equalization' which basically meant that I was paid the same wage as I had in the UK plus I would not be taxed any more. At the time I was a little miffed about that as I thought the US was a very low tax place, however as well as all the headline taxes there are a multiple of other taxes that soon add up.

My company used KPMG to do my taxes and sort out the items which would be a benefit in kind. Looking at my tax returns form then, I see my total wage was at least twice what I was seeing.

As far as the amount for the rental, that seems a reasonable sum although there are parts of the country where it would get you a bedsit, so realtor.com, for example, would give you an idea of what is reasonable for the area.

I'm not sure if your company has offered but it might be worth getting them to retain a realtor to help with the search, one issue you may have is renting a place with no credit history, the realtor will be used to dealing with this.

Best regards
scaly back is offline  
Old Nov 7th 2019, 4:48 pm
  #4  
Austin. TX.
 
petitefrancaise's Avatar
 
Joined: Sep 2013
Posts: 5,344
petitefrancaise has a reputation beyond reputepetitefrancaise has a reputation beyond reputepetitefrancaise has a reputation beyond reputepetitefrancaise has a reputation beyond reputepetitefrancaise has a reputation beyond reputepetitefrancaise has a reputation beyond reputepetitefrancaise has a reputation beyond reputepetitefrancaise has a reputation beyond reputepetitefrancaise has a reputation beyond reputepetitefrancaise has a reputation beyond reputepetitefrancaise has a reputation beyond repute
Default Re: Tax benefit if employer rents home for L1 employee for 2 years

Originally Posted by Mic1 View Post
Hi all,

Been over a year since i last posted. Was all set to move over to the USA to head up the opening of a subsidiary last year but the mother company decided to put the project on hold due to business opportunities in another region. Everything is back on track now though which is good.

Quick questions, i'll be moving on an L1 but have no intention of selling my UK home in Surrey, at least not until my family and i decide that the USA is for us.....long term. We have two young daughters.

My employer is toying with the idea of renting a house on my behalf for the initial two years but can't seem to nail down the tax advantages (or disadvantages) to myself and/or themselves. Obviously it means that they would be able to pay me a lesser salary. We're looking at a rental budget of circa $3500 PM, (not inc utility bills, HOA's etc). They are set on paying for medical cover to the tune of around $24k PA and i'd be furnished with an all expenses paid vehicle, probably leased.

Anyone been in a similar situation? My only real concern is that i'd struggle to build any real credit history with this arrangement if i did decide to sell our UK residence, move the money across and take out a small (ish) mortgage.

Many thanks

Mic
Sounds like your employer needs to be talking to competent accountants - any of the big ones would be able to "nail down" the tax implications very quickly indeed!
Credit history, as scalyback said ( he also had a thread going about this) rental payment/utilities don't count towards credit history. Only if they go into arrears and goes to collections then it's a big negative impact.
Building credit -
you can get a couple of credit cards - creditstacks/wellsfargo/bank of america/advancial credit union will all give you credit cards either before you leave UK or as soon as you land here.
lease a car - cheaper interest rates than getting a small car loan
buy a sofa or something using store credit.
People get fixated on credit cards but actually a variety of credit payments are preferred
It's going to take time to build the credit.

If you decide to rent then a gross salary of at least 3 x rent payment amounts is needed + a hefty deposit usually works. Deposit of at least 1 month rent here in Austin but sometimes 2x. This will vary across the country.

Finally, I'm no expert but you need to look into the tax implications of selling your house - I believe the time limit is 2 years of living here in the USA for Capital gains and then there is the issue of capital gains due to a mortgage gain. Others can explain that one!

petitefrancaise is offline  
Old Nov 7th 2019, 6:07 pm
  #5  
You aint seen me, right?
 
SpoogleDrummer's Avatar
 
Joined: Oct 2005
Location: US of A, TN
Posts: 2,429
SpoogleDrummer has a reputation beyond reputeSpoogleDrummer has a reputation beyond reputeSpoogleDrummer has a reputation beyond reputeSpoogleDrummer has a reputation beyond reputeSpoogleDrummer has a reputation beyond reputeSpoogleDrummer has a reputation beyond reputeSpoogleDrummer has a reputation beyond reputeSpoogleDrummer has a reputation beyond reputeSpoogleDrummer has a reputation beyond reputeSpoogleDrummer has a reputation beyond reputeSpoogleDrummer has a reputation beyond repute
Default Re: Tax benefit if employer rents home for L1 employee for 2 years

When you have a company vehicle if you use it for personal use rather than purely for work your employer is meant to withhold taxes based on that benefit, I'd be surprised if there wasn't something similar involved with renting a house for you.

Also make sure you have your salary nailed down so you know exactly what you'll be getting once their 2 year rental is up, you don't want to be settled in the US then they offer you a lesser deal and leave you with no choice but to accept or return to the UK.

Credit could also be an issue as your overall salary will be artificially low.
SpoogleDrummer is offline  
Old Nov 7th 2019, 11:11 pm
  #6  
Lost in BE Cyberspace
 
Joined: Jan 2006
Location: San Francisco
Posts: 9,654
Giantaxe has a reputation beyond reputeGiantaxe has a reputation beyond reputeGiantaxe has a reputation beyond reputeGiantaxe has a reputation beyond reputeGiantaxe has a reputation beyond reputeGiantaxe has a reputation beyond reputeGiantaxe has a reputation beyond reputeGiantaxe has a reputation beyond reputeGiantaxe has a reputation beyond reputeGiantaxe has a reputation beyond reputeGiantaxe has a reputation beyond repute
Default Re: Tax benefit if employer rents home for L1 employee for 2 years

Originally Posted by SpoogleDrummer View Post
When you have a company vehicle if you use it for personal use rather than purely for work your employer is meant to withhold taxes based on that benefit, I'd be surprised if there wasn't something similar involved with renting a house for you.
Even if they don't withhold, it will show up as taxable income to the OP on their year-end W2. Whicever way, getting the employer to "gross up", i.e. effectively pay hte tax on, any relocation costs is pretty essential imo.
Giantaxe is offline  
Old Nov 8th 2019, 9:11 am
  #7  
Forum Regular
Thread Starter
 
Joined: May 2018
Posts: 55
Mic1 is an unknown quantity at this point
Default Re: Tax benefit if employer rents home for L1 employee for 2 years

Hi, thanks everyone for the feedback.

I understand now that renting doesn't help as far as building credit but does correspondence from a landlord stating that payment frequency and due dates were all met and bank statements from me backing up the fact carry any weight when approaching a mortgage lender? As you all mentioned, i could reach out to credit card companies and buy a few pieces of furniture on credit plus we did look at buying a reasonable car for my wife outright (something around $25k) but could maybe do a half down instead.

I'm having trouble understanding though how this huge benefit in kind wouldn't greatly impact the tax i pay to the point that there is little or no saving. This potentially is little more than creative tax avoidance, if it was that easy, surely every employer who relocates an employee would be doing this initially? Doing the sums, they are working on the basis that it would allow them to reduce my salary (pre bonus) from around $140k to $85k without making a difference to my net take home. My ideal is to be left at the higher salary and keep it clean but i understand where they are coming from as every saving during our 'set up' years is welcome.

Thanks
Mic1 is offline  
Old Nov 8th 2019, 12:55 pm
  #8  
Just Joined
 
Joined: Apr 2012
Location: NoVa
Posts: 6
scaly back is an unknown quantity at this point
Default Re: Tax benefit if employer rents home for L1 employee for 2 years

Hmmm,
I think you should dig a little deeper into how they are going to do this. My understanding is that you would still be liable for paying the tax on an income of $140K as the rent would be reported as a benefit in kind. Depending on how this is done you could end up with a tax demand on the $55K at the end of the year.

I fail to see how you benefit from this arrangement. If as you suspect, there is some accounting chicanery involved, I would think you would not want to be party to it, even at a remove.

The usual reasons for a company paying rent etc. is to get employees to relocate on very favorable terms, i.e. if you are willing to go we will pay all your major bills and your salary will stay the same, thus meaning you are considerably in pocket (everything grossed up to meet any tax liabilities)

This is far from a cheap option for a company, in fact they are very keen to get you off them and onto a local contract, where you are in a very strong position during the negotiations :-)
scaly back is offline  
Old Nov 8th 2019, 4:31 pm
  #9  
Lost in BE Cyberspace
 
Joined: Jan 2006
Location: San Francisco
Posts: 9,654
Giantaxe has a reputation beyond reputeGiantaxe has a reputation beyond reputeGiantaxe has a reputation beyond reputeGiantaxe has a reputation beyond reputeGiantaxe has a reputation beyond reputeGiantaxe has a reputation beyond reputeGiantaxe has a reputation beyond reputeGiantaxe has a reputation beyond reputeGiantaxe has a reputation beyond reputeGiantaxe has a reputation beyond reputeGiantaxe has a reputation beyond repute
Default Re: Tax benefit if employer rents home for L1 employee for 2 years

Originally Posted by Mic1 View Post
I'm having trouble understanding though how this huge benefit in kind wouldn't greatly impact the tax i pay to the point that there is little or no saving. This potentially is little more than creative tax avoidance, if it was that easy, surely every employer who relocates an employee would be doing this initially? Doing the sums, they are working on the basis that it would allow them to reduce my salary (pre bonus) from around $140k to $85k without making a difference to my net take home. My ideal is to be left at the higher salary and keep it clean but i understand where they are coming from as every saving during our 'set up' years is welcome.

Thanks
As I explain in post #6, it will end up as taxable income to you (assuming that your company is not into tax fraud).

https://www.thebalancesmb.com/employ...penses-4141194

Last edited by Giantaxe; Nov 8th 2019 at 4:34 pm.
Giantaxe is offline  
Old Nov 8th 2019, 5:40 pm
  #10  
Forum Regular
Thread Starter
 
Joined: May 2018
Posts: 55
Mic1 is an unknown quantity at this point
Default Re: Tax benefit if employer rents home for L1 employee for 2 years

Originally Posted by scaly back View Post
Hmmm,
I think you should dig a little deeper into how they are going to do this. My understanding is that you would still be liable for paying the tax on an income of $140K as the rent would be reported as a benefit in kind. Depending on how this is done you could end up with a tax demand on the $55K at the end of the year.

I fail to see how you benefit from this arrangement. If as you suspect, there is some accounting chicanery involved, I would think you would not want to be party to it, even at a remove.

The usual reasons for a company paying rent etc. is to get employees to relocate on very favorable terms, i.e. if you are willing to go we will pay all your major bills and your salary will stay the same, thus meaning you are considerably in pocket (everything grossed up to meet any tax liabilities)

This is far from a cheap option for a company, in fact they are very keen to get you off them and onto a local contract, where you are in a very strong position during the negotiations :-)
Thanks SB,

They have yet to engage a tax professional, that will come in the next month of so. I fully understand their way of thinking but as you quite rightly point out, trying to mess with the IRS will end in tears for all involved.

Thanks again,

Mic

Mic1 is offline  
Old Nov 8th 2019, 5:42 pm
  #11  
Forum Regular
Thread Starter
 
Joined: May 2018
Posts: 55
Mic1 is an unknown quantity at this point
Default Re: Tax benefit if employer rents home for L1 employee for 2 years

Originally Posted by Giantaxe View Post
As I explain in post #6, it will end up as taxable income to you (assuming that your company is not into tax fraud).

https://www.thebalancesmb.com/employ...penses-4141194
Thanks Giantaxe,

I am quite sure you are correct with what you write. Nope, they are totally above board.....i think that they've been given some duff advice from people who aren't US tax accountants!
Mic1 is offline  
Old Nov 8th 2019, 6:16 pm
  #12  
Austin. TX.
 
petitefrancaise's Avatar
 
Joined: Sep 2013
Posts: 5,344
petitefrancaise has a reputation beyond reputepetitefrancaise has a reputation beyond reputepetitefrancaise has a reputation beyond reputepetitefrancaise has a reputation beyond reputepetitefrancaise has a reputation beyond reputepetitefrancaise has a reputation beyond reputepetitefrancaise has a reputation beyond reputepetitefrancaise has a reputation beyond reputepetitefrancaise has a reputation beyond reputepetitefrancaise has a reputation beyond reputepetitefrancaise has a reputation beyond repute
Default Re: Tax benefit if employer rents home for L1 employee for 2 years

Originally Posted by Mic1 View Post
Thanks Giantaxe,

I am quite sure you are correct with what you write. Nope, they are totally above board.....i think that they've been given some duff advice from people who aren't US tax accountants!
This is really obvious!
I work in relocations. I very rarely see an employee having the house/car provided and then tax grossed up - it's complicated tax wise and if you are going to be on the US payroll, it messes up the salary band they put you in.
A cleaner way to do this would be to put you on the US payroll at the rate they pay the same role in the USA - out of this you would be able to pay for your own car and your own rent. Importantly, this gives you the choice of how much to spend on each.
An employee might be given a lump sum payment ( grossed up) to cover the cost of say 6 month's rent (this is usually an exec level employee) and a lump sum payment to cover relocation costs, again grossed up to cover tax liability.
On the other hand if you are "setting up " the US office and you don't have all the figures you need to relocate yourself as the first person doing it- might I suggest that your company contact a "regional mobility company" to sort this out? They will have all the information needed to sort out your package and probably cheaper than a big accountancy firm. They'll basically sort out the whole package from removals to salary to moving benefits to housing /school assistance.
If you want to shoot me a pm I can give you some companies that I know are good at this. I'm freelance so I work with a few.


petitefrancaise is offline  
Old Nov 8th 2019, 6:29 pm
  #13  
Concierge
 
Rete's Avatar
 
Joined: Apr 2001
Posts: 43,055
Rete has a reputation beyond reputeRete has a reputation beyond reputeRete has a reputation beyond reputeRete has a reputation beyond reputeRete has a reputation beyond reputeRete has a reputation beyond reputeRete has a reputation beyond reputeRete has a reputation beyond reputeRete has a reputation beyond reputeRete has a reputation beyond reputeRete has a reputation beyond repute
Default Re: Tax benefit if employer rents home for L1 employee for 2 years

Originally Posted by civilservant View Post
Renting isn't going to build any credit history anyway. Medical coverage is standard for the US, but you need to look into the coverage details, copay, deductibles etc.

You're going to need 2 cars, so one will need to be bought - and theres nothing stopping you getting a credit card or 3. You will be able to build credit over time.

Having items paid by your employer will have real tax implications, so they should pay for a tax professional for the first 2 years at least.
I've always been a renter and my credit reports do show if there was a late payment of rent which would have impacted my credit rating. Unfortunately, 40 years ago when a single mother, once in a great while the rent was late by 10 days. It is difficult to live paycheck to paycheck without a savings account because there was no extra money to be saved. I honestly don't know if the rules have changed but I honestly don't think it has.
Rete is offline  
Old Nov 8th 2019, 8:52 pm
  #14  
Forum Regular
Thread Starter
 
Joined: May 2018
Posts: 55
Mic1 is an unknown quantity at this point
Default Re: Tax benefit if employer rents home for L1 employee for 2 years

Originally Posted by Rete View Post
I've always been a renter and my credit reports do show if there was a late payment of rent which would have impacted my credit rating. Unfortunately, 40 years ago when a single mother, once in a great while the rent was late by 10 days. It is difficult to live paycheck to paycheck without a savings account because there was no extra money to be saved. I honestly don't know if the rules have changed but I honestly don't think it has.
Thanks Rete, so i assume that a management company would be reporting as opposed to a private landlord?
Mic1 is offline  
Old Nov 8th 2019, 10:16 pm
  #15  
Forum Regular
Thread Starter
 
Joined: May 2018
Posts: 55
Mic1 is an unknown quantity at this point
Default Re: Tax benefit if employer rents home for L1 employee for 2 years

Originally Posted by petitefrancaise View Post
This is really obvious!
I work in relocations. I very rarely see an employee having the house/car provided and then tax grossed up - it's complicated tax wise and if you are going to be on the US payroll, it messes up the salary band they put you in.
A cleaner way to do this would be to put you on the US payroll at the rate they pay the same role in the USA - out of this you would be able to pay for your own car and your own rent. Importantly, this gives you the choice of how much to spend on each.
An employee might be given a lump sum payment ( grossed up) to cover the cost of say 6 month's rent (this is usually an exec level employee) and a lump sum payment to cover relocation costs, again grossed up to cover tax liability.
On the other hand if you are "setting up " the US office and you don't have all the figures you need to relocate yourself as the first person doing it- might I suggest that your company contact a "regional mobility company" to sort this out? They will have all the information needed to sort out your package and probably cheaper than a big accountancy firm. They'll basically sort out the whole package from removals to salary to moving benefits to housing /school assistance.
If you want to shoot me a pm I can give you some companies that I know are good at this. I'm freelance so I work with a few.
Thanks, have bounced you a PM.
Mic1 is offline  

Contact Us Archive Advertising Cookie Policy Privacy Statement Terms of Service

Copyright © 2018 MH Sub I, LLC dba Internet Brands. All rights reserved. Use of this site indicates your consent to the Terms of Use.