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Anne, Master Tax Preparer
Category: Tax
Satisfied Customers: 2439
Experience:  Enrolled Agent with 25 Years Experience specializing Individual and Small Businesses
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Tax-Protected Versus Tax-Equalized

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I am considering a 6-month ex-pat assignment with my company, located in the United Arab Emirates. My company has switched from tax-protected to tax-equalized status.

Some say that tax-equalized is a terrible deal for me. While I have read article comparing the two statuses, I still don't quite understand how specifically this will be bad for me.

Is there a good way to prepare for this, so it won't impact me so badly? I have not accepted the assignment yet.

Thank you,
HiCustomerbr />
Thank you for using justanswer.The concept of tax equalization is that the expatriate should be neither better nor worse off from a tax point of view by accepting an overseas assignment. He will continue to be subject to the same level of tax as if he had remained at home. The tax impact of the assignment is therefore neutralized for the expatriate.

In reality, it depends on where your assignment takes you. If you were assigned to a country whose tax was higher than the US, and your company used the tax protection method, then your employer would pay the difference between the US tax owed and the tax owed in the country you worked in.

However, if you had been assigned to a lower tax jurisdiction than the US, the difference between the (low) host country tax and the (higher) home country tax is refunded to the employee. This is the advantage that I think you are hearing about, since under the tax equalized status you would lose that monetary difference.

Since your company has now adopted the tax equalized status, your tax liability will remain the same as if you were working in the US. You will neither lose nor gain tax wise. Please see below for what I feel is a pretty good explanation in layman's terms. (You will need to copy and paste this into your web browser)

I hope this helps.

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