Many companies based in the U.S. or based outside the U.S. but with facilities in the U.S. bring in executives who are not U.S. citizens or green card holders for assignments lasting up to several years. Although the Tax Cuts and Jobs Act of 2017 reduced individual income tax rates, our tax rates are still higher than those in many other countries. I blogged on this issue back in 2011, Stock Compensation Planning for Foreign Executives Transferring to Work in the U.S., but a recent matter on which I was working led me to conclude that it was time to blog again.
There are great tax savings to be had for most executives who are temporarily resident in the U.S. and are neither U.S. citizens nor green card holders. The tax savings opportunities may be available both on the way in and on the way out of the U.S. However, the tax savings strategies generally require planning and close attention to the individual’s Residency Starting Date and his or her Residency Ending Date.
An executive becoming resident in the U.S. would become subject to U.S. taxation during the year of his or her Residency Starting Date and remain subject to U.S. taxation until his or her Residency Ending Date. U.S. taxation could apply to equity or other incentive awards made while the individual was resident in another country, but which become vested or payable while the executive is a U.S. tax resident.
Of course, U.S. citizens face U.S. income tax on their world-wide income, no matter where they live, so most readers will be stuck with U.S. income tax. But any company that hires or brings in an executive who is not a U.S. citizen or green card holder may want to explore these tax strategies.