Mobility via Podcast


Episode 19: Biden’s First 100 Days & Beyond: Tax Policies & Implications for Global Mobility

John Seery, Carol Kulish and Rob Fagan discuss the Biden administration’s tax proposals and prospects for major tax changes.

Carol Kulish

Carol Kulish

(Retired) Director, Washington National Tax, Federal Legislative & Regulatory Services, KPMG US

John Seery

John Seery

Senior Manager, Washington National Tax Global Mobility Services, KPMG US

+1 202-533-3313

Rob Fagan

Rob Fagan

Manager, Washington National Tax, Global Mobility Services, KPMG LLP (US)

+1 973-912-6633

Podcast transcript

John: Hello and welcome to the latest episode of Mobility via Podcast.  In this series we take a look at significant trends and the future state of global mobility as it faces the winds of automation, geopolitics, diversity, inclusion and more.  I’m John Seery, a senior manager in KPMG’s Washington National Tax practice, Global Mobility Services group.  Today we’re going to take a look at some of the Biden administration’s tax proposals and prospects for major tax changes.  I’m joined by Carol Kulish, a director in the Washington National Tax Federal Legislative and Regulatory Services group and Rob Fagan, a manager in the Washington National Tax practice’s Global Mobility Services group. 

Well, Carol and Rob, it’s been just over 100 days into the new administration, and there’s been quite a bit of tax activity.  For today’s discussion, I want to focus on the individual income tax proposals that were announced along with the American Families Plan, specifically focusing on the proposed rate changes - raising the top individual income tax rate from 37 percent back to 39.6 percent and raising the tax rate on capital gains and qualified dividends for households with income over $1 million to 39.6 percent - and also the expanded child tax credit, and some considerations for Global Mobility programs and international assignees.

I know a number of clients are interested in gauging the impact of these proposed changes on overall program cost, but really it is going to come down to the specifics of any legislation that’s actually enacted. 

Certainly for programs that have assignees that are presently subject to tax at that highest marginal rate, a rate increase is going to mean that an assignee is going to have a U.S. tax increase which is going to cause a corresponding increase in program cost.  But we don’t know everything that’s going to be in this bill yet.  Potentially there may be other offsets.  There is some discussion which we will discuss later on about potentially repealing the $10,000 cap on state and local tax.  So that might help offset the program cost.  There are potentially other credits that taxpayers might be eligible for. 

 It’s also important to keep in mind that rate is just one element that’s going to go into program cost, also assignee makeup.  Certainly in the U.S. outbound context, higher rates might actually reduce equalization costs because a hypothetical tax withholding on non-assignment income for highly compensated assignees would actually increase.                 

Another question that we’ve gotten a lot recently is whether or not the administration is seeking to make these proposals retroactive to January 1, 2021.  So, I’m wondering.  Carol, do you have any insights as to what the administration’s proposals are?

Carol: Well, as you said, we don’t have specifics yet they will be releasing the Green Book which is the Treasury’s explanation of budget proposals.  That may be coming out as soon as the last week of May.  That is expected to have more technical details.  We’ll have to wait and see, but it may well be the case that the administration defers to Congress as to what it considers to be appropriate dates for some of these provisions. 

 I will say that when push comes to shove, you have to look at the individual provisions, what the policy would be behind retroactivity.  The politics may be different for some provisions than for others, but it is possible.  So, people do have to take into account that possibility, but there are some factors that may mitigate against it happening, but right now we’re just waiting to see what happens as Congress begins its consideration of the proposals and seeing what other details come out.

John: Well, thanks, Carol.  Actually on that topic, I think if these rates aren’t effective until 2022, that potentially there may be a planning opportunity here for assignees with equity compensation.  I’m wondering, Rob, if you might be able to provide some insights there.

Rob: Yes, absolutely, and this planning opportunity revolves around employees that are granted restricted stock.  So, in general there are two taxation events that occur when an employee is provided restricted stock.  The first is a compensation element where compensation income is recognized usually at the vesting of the restricted stock, and then there’s also the capital gain element that happens after the stock vests and the employee actually sells that stock. 

What an 83(b) election allows you to do is instead of recognizing compensation at the vest state, it allows you to accelerate that recognition of compensation on the date of grant, when it’s granted.  So, this provides planning opportunities for employees who may be high-income earners who are granted restricted stock in 2021.  If they already make that 83(b) election, they may be able to take advantage of those lower rates so that that compensation element is taxed at the current rates that are in effect, that 37 percent for the top, rather than waiting till that equity vests in which they’ll be taxed at the rate that’s currently in effect during that year which, as we see from the Biden proposals, would be 39.6 percent. 

That 2.6 percent difference may not seem a lot, but a lot of these equity awards are for hundreds of thousands of dollars, and especially if a program grosses up the compensation element when it grants during an 83(b) election, that could be a huge cost to a program, and huge cost savings could be had if they utilize this 83(b) election.  So it’s definitely something worth considering and could be a beneficial planning point for programs.

John: I think that the topic of equity compensation is actually probably a perfect segue into talking about one of the other proposals here which is raising the tax rate on capital gains and qualified dividends for households with income over a million dollars to 39.6 percent.  That’s almost doubling the tax rate that’s being applied for higher-income individuals on their personal income. 

I think this might be an area that programs are going to want to review their policies on and how they are handling personal income because it may be the case that assignment allowances and compensation and gross-ups are putting assignees over that million-dollar threshold.  So, who is going to be responsible for that increase in tax?  When we were talking about a change from 15 percent to 20 percent, it’s significant, but certainly a change from 20 percent to 39.6 percent is much more significant. 

Many programs have assignees remain responsible for tax on all nonemployment income, but I am aware of some clients who actually are responsible for the increase in tax on personal income due to assignment allowances.  I would encourage programs to review their policies and ensure that they are handling personal income so that there are no surprises if these proposals are enacted into law and also, if they are making changes, obviously communicating what those changes might mean to their assignee population.

I want to actually now take an opportunity to address the expansion of the Child Tax Credit that was included in the American Rescue Plan Act that was enacted earlier this year.  When this credit was first enacted, we got a lot of questions from clients about how this will impact their assignee population, and it will really depend, but certainly with clients that have a large outbound population, I think a number of assignees are going to discover that they actually will not qualify for the expanded credit, but they won’t be in a worse position than they were under prior law. 

The threshold for the expanded credit is relatively low.  So, assignees who are receiving not just their normal base salary but assignment allowances and tax gross-ups are going to likely find themselves over the dollar threshold, and also the amount that would normally be excluded from gross income because they claim the foreign earned income exclusion, for example, are actually added back for purposes of determining that income threshold. 

 It is also the case that individuals who are U.S. persons on assignments outside the U.S. will not qualify for the refundable portion, and they will also not qualify for the new advanced payments.  This is because the law requires that an individual have an abode in the U.S. for more than one half of the tax year.  So you may have assignees who were qualifying for the credit in 2021 because they were here in the U.S., but they begin an assignment in 2022.  They are no longer going to qualify for the refundable portion of the credit, and they may also not qualify for the advanced payment mechanism.  

I think, Rob, I’d like to turn to you.  Are there any considerations for programs with respect to the advanced payment of the Child Tax Credit?

Rob: Sure, absolutely.  We’ve seen sort of an advanced payment mechanism that’s similar but not exactly the same into how the Recovery Rebate Credits were structured in that there are advanced payments of a credit that’s going to be claimed on your return, and the amount of the payment is based on information from previous returns that are filed, and then the actual amount of the credit is reconciled when the return is filed.  So, for the Child Tax Credit, you were receiving up to 50 percent of what your expected Child Tax Credit would be through periodic payments.  The IRS will calculate what your expected payment and expected Child Tax Credit should be based on information on your prior returns. 

The Child Tax Credit operates in a way where if let’s say you receive periodic payments based on your 2020 income tax return, but then on your 2021 income tax return, your income skyrockets and you’re not eligible for the credit, you do have to pay back to the IRS the periodic payments that you received. 

So, from a Global Mobility perspective, while a lot of assignees who are equalized are in a situation where all refunds that they receive from tax authorities are sent back to the employer, it may be the case where you should wait until the actual 2021 return is completed and the equalization is completed as well before returning any advanced payments that you received to the employer.  Because even though it would be great for employers from a cash flow perspective to receive those advanced payments as they’re coming in, it may be that the assignees are not entitled actually to those advanced payments, and they’ll have to return them to the IRS. 

So, while it may seem beneficial to inform the assignees that once you receive a payment, please return it back to the employer, it may be a better approach for Global Mobility programs to not request that the advanced payments be returned to them by their assignees as they are issued, but rather wait until the return and equalization is completed to ask for the refunded amounts back.

John: Yes, certainly a lot administratively to think through with this advanced payment mechanism.  I think there are a few interesting items that were talked about a lot in some of the shared forums that we had after Biden was elected, and that’s about whether or not potentially the state and local tax limitation might be repealed.  That was not in any of the proposals the administration recently released, and also the Old-Age, Survivors, Disability Insurance donut hole. 

So, there was a campaign proposal where Biden was proposing that we turn FICA tax back on for wages in excess of $400,000.  So you have an employee who is subject to FICA on wages up to $142,800 for 2021 and then is not subject to FICA until they have wages in excess of $400,000, and that obviously would be a significant cost to employers for assignees that are equalized because the employer is going to be funding both their portion of OASDI tax as well as the employee’s portion and any gross-ups on that. 

Those two proposals were not included in the revenue raisers that were released alongside with the American Families Plan, and I’m wondering, Carol, if you have any insights as to whether we may see either of these proposals in any legislation that the House or Senate might put together and maybe, if there’s any reason why potentially we would be more likely to see one versus the other.

Carol: Yes, and let me first make a general observation, and then I promise I’ll get to your specific question.  But just to remind people, we’re pretty much at the beginning of the process with the proposed Build Back Better Recovery Plan.  We said right now that the administration has outlined at a very high level these proposals.  They might be providing more details soon.  They may have some other proposals they throw out there. 

What the administration proposes is just a starting point.  Congress has to actually put together legislation, fleshing out these particular proposals.  In that process there’s likely to be some members of Congress, Democrats, who would follow the lead of the president, but also there are going to be members of Congress who have their own priorities and have their own concerns given their particular constituents that they represent, and they may want to make changes.  They may want to modify provisions.  They may want to strike stuff they view as problematic, and they may want to add things that are really important to them. 

If you don’t have Republican support for a bill with significant tax increases, the Democrats have a number-crunching exercise in figuring out how to put together a bill that gets all 50 Senate Democrats on board as well as almost all House Democrats.  They may end up paring back the amount of revenue raisers.  With some of the revenue raisers that are on the table, they may modify things like rates or thresholds, dollar amounts.  They may add details, add exceptions, and they may add other provisions that are not in the mix. 

 As I said, the administration may well add proposals also.  So just the big thing to keep in mind is we’re at the beginning of a process.  I would expect to see a lot of changes as this goes through just because it has to be fleshed out and, again, because this is such a politically challenging bill to put together to make sure you get, again, if you don’t have Republican support, that you have most of the Democrats on board.  That’s challenging, and that requires making changes in order to bring everybody on board.

 But in terms of the two specific things that you asked about, the OASDI proposal, that raises a chunk of revenue.  It wouldn’t surprise me to see that come up, but it may well be that it doesn’t come up in an infrastructure bill and maybe that at some point further down the road we see a proposal that deals with shoring up Social Security and that this might be more of a natural fit for it.  They may also mess with it to change some of the thresholds. 

As I said, details could change.  There are some issues they may have to confront if it’s a Democrat-only bill and if they use these special procedures, reconciliation procedures.  There may be questions, depending upon how it’s drafted, whether it qualifies, but there may be ways around that.  So again, we’re just at the start of a process, but it wouldn’t surprise me to see that come up, but it possibly might come up in a different context. 

 The SALT deduction limitation, that’s a big issue right now, and no one knows what’s ultimately going to happen with that.  With regard to that issue, it’s very important to some Democrats who represent areas where the limit is having a big impact on its constituents, and it’s a big issue for their constituents, and some of those House Democrats, some of them are in districts that could swing either way in the next midterm election.  They’re saying they won’t vote for a bill that doesn’t include some sort of change or repeal of this limitation that was put in place in 2017. 

 On the other side of the coin, you’ve got some Democrats, some of the more progressive Democrats, who have concerns that carving back or getting rid of that limit would benefit upper income individuals, and they’re trying again to focus more on providing breaks to the middle and lower-income individuals than upper-income individuals.  So, there’s sort of a split in views within the Democratic party as to how to proceed with it.  

 No one knows how that’s going to work out.  At the end of the day right now, I’m inclined to think that there will be something done with it, and that’s in part because, as I said, when they put together this bill, they’re going to be putting it together with the vote count in mind, and for some of those Democrats for whom this is an issue, they say this is their number one issue on the tax side, and they might not vote for the bill unless it includes something addressing SALT, whereas some of the people who are opposed to it are going to like some of the other stuff in the bill.  It may well be that they’d still vote for the bill even if it has SALT, if it has their other priorities. 

John: So as you mentioned, we are just at the beginning of this process.  I am curious what we expect in terms of what some of the next steps in that process might be.

Carol: So yes, the next step that I’d be looking for we’ve already mentioned is the fact that the Treasury may be releasing more information, more technical details about some of its proposals as soon as the last week in May, the Green Book.  But in terms of the legislative process, where things stand right now is the administration and Congress are still working to see if they can reach bipartisan agreement on some aspect of an infrastructure bill, something that likely would be smaller and more narrow than what the administration has proposed in the infrastructure space, and that wouldn’t have the kinds of pay-fors that the administration proposed in its Made in America Tax Plan.  So they’re working to see if they can reach any bipartisan agreement. 

If that falls apart, if the effort to go bipartisan on any aspect of this falls apart, then the Democrats are likely to move on with a Democratic approach, and we may well see a repeat of the rescue plan where we have a bill pass with no Republican support, or maybe I think Democrats would be happy if they got any Republicans to support a package.  Various of these plans may end up being clumped together.  We’ll have to wait and see how that works. 

Speaker Pelosi, the speaker of the House, has previously said that she’d like the House to finish its bill by July 4th, and you can certainly see where Democrats would want to move quickly in enacting major policy priorities. But that said, that’s an extremely aggressive time-frame.  It’s really not that far away.  I mean we’re approaching Memorial Day now.  July 4th is right around the corner.  There’s a lot of work that has to be done, even more work if they use these special procedures to move it with just Democratic support. 

So, it’s a very aggressive, very aggressive time-frame, and I think there’s a good chance that this could end up rolling to the fall or being a fourth quarter bill ultimately but, again, we’re just at the beginning of the process now.  There’s still a ways to go.  Although they may want to move quickly, the amount of work that’s involved and everything they’ve got to do and other political factors may end up with it rolling to later in the year.

John: Just to be safe, Rob, I don’t think we should be making any big July 4th plans.  We may have to be reviewing some proposals and getting that information out to our clients.  But Rob and Carol, thank you so much for helping us take a closer look at the state of affairs regarding the Biden administration’s tax policies as we move on from the first 100 days, what might happen next and how the measures might affect Global Mobility if enacted.  I want to thank all of our audience for joining us today for this episode of Mobility via Podcast

To stay up to date on the Biden administration’s tax proposals and Mobility insights, be sure to subscribe to KPMG’s GMS Flash Alerts and TaxNewsFlash and listen to our Catching Up on Capitol Hill podcast.  In future episodes, we’ll continue to address the top-of-mind issues of interest to our listeners.  In the meantime, we’d love to hear from you.  If you have thoughts on today’s episode or ideas for future episodes, please send us an e-mail to  Thanks again for taking the time to listen.