Is equalization taxable?

Tax assistance payment is taxable wages, then employer covers tax on that too — 'tax-on-tax' gross-up.

What about state income tax?

Equalization typically covers federal + state. Some states (CA, NY) hard to break domicile from.

Are housing allowances taxable?

FEIE allows housing exclusion above base. Allowances above limits are taxable.

How long does typical assignment last?

2-5 years. Tax equalization runs entire assignment. Tail-period reconciliation common.

Does equalization affect 401(k)?

Yes — usually contribute on hypo salary not gross. Plan with HR Mobility team.

Expat Tax Equalization 2027

Tax equalization: company makes expat 'whole' so they pay same tax as if home-country assigned. Employer covers excess; expat keeps savings. This estimates hypo tax + equalization payment.

Salary ($)

Home Country Effective Tax %

Host Country Effective Tax %

Foreign Earned Income Exclusion?

Foreign Tax Credit available?

Hypo Tax (Expat Pays)

—

Host Actual

—

Employer Pays

—

Salary	—
Hypothetical home tax	—
Host country actual	—
FEIE amount excluded	—
US residual after FEIE	—
Total actual tax	—
Equalization payment	—

Tax equalization is a common expat package element where the employer makes the assignee 'whole' — they pay no more (and no less) tax than they would have at home. Employer absorbs host-country tax differential.

How Equalization Works

Hypothetical tax computed annually based on stay-home scenario. Expat pays only hypo tax via payroll deduction. Employer pays all actual taxes (host + home residual). At year-end, true-up balances.

Tax Protection Variant

Similar to equalization but employee KEEPS any tax savings from lower-tax host countries. More employee-favorable than equalization. Less common, costlier for employer.

Foreign Earned Income Exclusion (FEIE)

US Section 911: exclude up to $130,000 (2026 est) of foreign earned income from US federal tax. Must meet bona fide residence or physical presence (330 days/yr abroad) test. Combined with FTC for high earners.

Foreign Tax Credit

Alternative or supplement to FEIE: claim credit (not deduction) on US return for foreign income tax paid. Better for high earners in high-tax host countries (UK, Germany, France).

Last updated May 2026. Sources: IRS Foreign Earned Income, IRS Pub 54.