Shadow Payroll Tax Equalization Calculator
Calculates the tax equalization (TEQ) balance for expatriate employees on shadow payroll. Determines the hypothetical tax withheld, actual taxes paid in home and host countries, and the resulting equalization payment or recovery amount.
Employee Compensation
Hypothetical Tax (Hypo Tax) Parameters
Actual Home Country Tax
Actual Host Country Tax
Foreign Tax Credit & Other Offsets
Formulas Used
1. Total Gross Compensation (TGC)
TGC = Gross Salary + Allowances & Benefits + Bonus + Other Income
2. Hypothetical Taxable Base
HypoBase = max(0, Gross Salary + Bonus + Other Income − Hypo Deductions)
Note: Expatriate allowances are excluded from the hypo base per standard TEQ policy — the employee is taxed as if they never left home.
3. Hypothetical Income Tax
HypoIncomeTax = HypoBase × Hypo Income Tax Rate
4. Hypothetical Social Security / NI
HypoSocial = Gross Salary × Hypo Social Rate
5. Total Hypothetical Tax
TotalHypo = HypoIncomeTax + HypoSocial
6. Total Actual Tax
TotalActual = Home Income Tax + Home Social + Host Income Tax + Host Social
7. Net Employer Tax Cost
NetEmployerCost = max(0, TotalActual − Foreign Tax Credit − Other Offsets)
8. Tax Equalization (TEQ) Balance
TEQ Balance = TotalHypo − NetEmployerCost
> 0 → Employee Recovery | < 0 → Company Payment / Gross-Up | = 0 → Balanced
9. Net Take-Home Pay
NetTakeHome = TGC − TotalHypo
Assumptions & References
- All monetary inputs must be expressed in a common currency (USD). Convert host-country amounts using the prevailing exchange rate before entry.
- The hypothetical tax rate represents the employee's estimated effective home-country income tax rate as if they had remained at home, applied only to base compensation (salary, bonus, other income) — not to expatriate allowances.
- Expatriate allowances (housing, COLA, education, relocation) are excluded from the hypo tax base per standard TEQ policy (EY, Deloitte, KPMG global mobility frameworks).
- The Foreign Tax Credit (FTC) reduces the employer's net tax cost; it is applied after totalling all actual taxes paid.
- Social security / NI contributions are treated separately from income tax and may be subject to totalization agreements between countries (e.g., US–UK, US–Germany SSA treaties).
- This calculator uses a flat effective rate for the hypo tax. For progressive bracket calculations, consult a global mobility tax advisor.
- References: IRS Publication 54 (Tax Guide for U.S. Citizens Abroad); OECD Model Tax Convention; EY Worldwide Personal Tax Guide; Deloitte Global Employer Services TEQ methodology.
- Results are estimates for planning purposes only and do not constitute tax advice.