Plus Relocation

Hypothetically speaking, what is ‘hypo tax?’

Are you familiar with hypo tax and its role in international assignments? Senior Global Compensation Analyst Alexcis Perrine has all the info.

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Complete transcript: “Hi, I’m Alexcis Perrine, Global Compensation Analyst at Plus.  I’m here today to answer the question, ‘Hypothetically speaking, what is hypo tax?’

Going on an international assignment can impact an employee in many ways.  The trickiest of all can be their tax situation.  Many companies offer tax equalization to keep the employee in a tax-neutral position, meaning the employee won’t gain an advantage or disadvantage by taking an assignment.  Hypothetical tax is a key component of the tax equalization benefit and here’s how it works.

The tax provider calculates hypothetical home country tax which will be effective for the duration of the assignment.  Hypo tax replaces actual withholdings and is retained by the company to offset home and host country tax payments.  Hypo tax can be adjusted during an assignment to reflect changes in an assignee’s tax situation such as salary increases, changes to family size, bonuses, and outside personal income.  There is an annual settling up called tax equalization which compares the hypothetical taxes withheld against the assignee’s actual stay at home tax.  This can result in the employee owing more hypothetical tax or the company owing some back.

Now you should have a better idea of what hypo tax is and how it works.  Thanks for watching!”