Withholding Expatriate Hypothetical Tax

A hypothetical tax is often used for tax equalization of foreign employees. Tax equalization is designed to neutralize taxes when determining expatriate employees' compensation package.

When an employer moves an employee to another country for a work assignment, the native country and the host country may require income tax withholding. Even if expatriate employees' taxes have increased, employees only report taxes they would have withheld in their native country.

To neutralize the taxes, use a hypothetical tax. A hypothetical tax is the tax amount employees would have hypothetically paid if the assignment had not occurred. When withholding a hypothetical tax from an employee, the employer is responsible to pay the actual tax liability for the employee.

To collect the hypothetical tax from your expatriate employees, use a negative earnings on the employee's check.

UKG Pro provides the ExPatriate Hypothetical Tax (HYPOC) earnings tax category for Canada companies and the ExPatriate Hypothetical Tax (HYPOT) earnings tax category for U.S. companies. With these tax categories, expatriates continue to incur a tax burden equal to what would incur if they were living and working in their native country. The tax burden incurs regardless of the actual foreign tax liability.

There are two ways to withhold expatriate hypothetical taxes:

Manually enter negative earnings amounts through pay data entry
Automatically populate negative earnings amounts through an earnings expression

Earnings in Pay Data Entry (PDE)

You can manage expatriate hypothetical taxes individually during payroll. Manually enter the earnings amount directly to employees each time you process a payroll.

When editing earnings for expatriate employees, use these guidelines:

Configure the earnings code with a Flat Amount calculation rule
Enter the earnings as a negative amount

Note

The employee's check must contain regular earnings to avoid receiving the check calculation error: Insufficient Earnings.

Negative Earnings Check with hypothetical tax

Configure Expression to Automatically Populate

You can manage expatriate hypothetical taxes automatically through an earnings expression.

If you configure an amount to populate automatically, perform these steps:

Configure a user-defined field
Configure an earnings code, expression, and assign to earnings groups
Add earnings code and user-defined field to expatriate employees

Configure Expatriate User-Defined Field

Add a user-defined field for the expatriate earnings calculation.

Navigation:UKG Pro backoffice > select Setup Tables > EE User-Defined Fields

From the EE User-Defined Fields, select Add.
Enter a code to identify the user-defined field. Enter the code with the following format:
- Enter the first ten characters as EECUDFIELD
- Enter the last two characters as 09, 10, 19, 20, 25, or 26 (these codes are the only user-defined items configured as a dollar amount)
Enter a description for the user-defined field.
Select Save.

Configure Earnings and Expression

After adding the appropriate user-defined field, configure the earnings code and expression. Once you have completed configuring the earnings code, add the earnings to all applicable earnings groups.

Navigation:UKG Pro backoffice > select Setup Tables > Earnings

From the Earnings setup table, select Add.
Enter a code and description to identify the expatriate employee’s earnings.
From the calculation selection, select Expression.
Right-click on the Expression field and select Add Expression. The Custom Expression Builder window appears.
Enter the code and description for your expression.
Enter an expression to multiply the user-defined field by –1. For example: UDField09*-1
Select Ok.
From the Expression drop-down list, select your new expression.
From the Tax tab, select the tax category for the Expatriate Hypothetical Tax.
Configure the remaining earnings fields and select Save.

Add the Earnings Code and User-Defined Amount to Employees

For each expatriate employee, add the Expatriate Hypothetical Tax earnings. Add the user-defined field for Expatriate Hypothetical Tax amount.

Navigation:UKG Pro backoffice > Employee View/Edit > select employee

From the navigation pane, select the User Defined folder.
From the expatriate hypothetical tax user-defined field, enter the positive earnings amount.
Select Save.

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