It's increasingly common for U.S. companies to ask employees
to work abroad. That usually means dealing with two tax codes. But
companies recognize many employees won't accept foreign
assignments if it means higher taxes. So, most firms that move
U.S.-based employees provide either tax equalization or tax
protection:
- Equalization: Pay is
adjusted up or down so the employee's after-tax income is no
different than it would have been had she continued working in the
U.S;
- Protection: Same as
equalization, except there's no downward adjustment. This would
only be an issue if tax in the foreign country is lower than the
tax in the home country.
EQUALIZATION CALCULATION
The equalization calculation is often complex because it's
hard to determine hypothetical tax, which is what the
employee's tax would've been at home. Once hypothetical tax
has been determined, it's compared to actual tax; the employer
then pays the employee the difference. But that payment is
