Inbound assignments
Foreign nationals coming into the U.S. are deemed to be U.S. tax residents if they meet the substantial presence test under IRC Section 7701(b)(3). Short-term assignments to the U.S. are often planned to avoid triggering U.S. tax residency under this test. However, current travel restrictions might prevent short-term assignees from leaving the U.S. in a timely manner, resulting in unintended U.S. tax residencies. Revenue Procedure 2020-20 provides relief under the substantial presence test by allowing an individual to exclude up to 60 calendar days of presence in the U.S. during the COVID-19 travel restriction period if the individual meets certain criteria. Taxpayers must file Form 8843, “Statement for Exempt Individuals and Individuals
With a Medical Condition,” with a duly filed Form 1040NR, “U.S. Nonresident Alien Income Tax Return,” to claim this relief.
Revenue Procedure 2020-20 also applies to individuals from countries that have entered into bilateral income tax treaties with the U.S. These treaties generally contain their own tax residency criteria, which typically provide that tax residency is not triggered until an employee is present in the host location for more than 183 days in a 12-month period. Current travel restrictions could prevent foreign nationals from returning home prior to the 183-day limit. Revenue Procedure 2020-20 exempts days present in the U.S. during an emergency period in the 183-day computation provided affected individuals are unable to leave the U.S. during the emergency period. The emergency period is a self-selected 60-calendar-day period beginning on or after Feb. 1, 2020, and on or before April 1, 2020, in which the employee is present in the U.S.
Outbound assignments
Qualified U.S. individuals who are living and working outside the U.S. are eligible to exclude certain foreign earned income and foreign housing costs from U.S. gross income under IRC Section 911(d)(1). The IRC further provides that an individual who normally would qualify for this exclusion as a bona fide resident of the foreign location, but who leaves the location due to war, civil unrest, or similar adverse conditions, continues to qualify for this exclusion. Revenue Procedure 2020-27 has included the COVID-19 medical emergency as an adverse condition for China, with the exception of Hong Kong and Macau, as of Dec. 1, 2019, and for the entire globe as of Feb. 1, 2020.
Under the revenue procedure, an individual who otherwise would have qualified for the foreign earned income exclusion and/or the foreign housing exclusion but left the foreign location on or after Feb. 1, 2020 (Dec. 1, 2019, for China) but on or before July 15, 2020, will be treated as a qualified individual for these two exclusions.
Non-U.S. provisions
Tax authorities outside the U.S. continue to review their tax regulations and consider possible relief that might be made available to mobile employees who are disrupted during this global health emergency, and specific country provisions should be reviewed as appropriate.
International assignments can be an exciting time for an individual, but unplanned stays or emergency evacuations can negatively affect employee welfare. For employees who are trying to conserve cash and reduce costs, adding unexpected tax can create unneeded stress and anxiety and make international assignments even more expensive.
