JH
Member
Posts: 26
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Post by JH on May 19, 2023 12:29:18 GMT
Gentleman,
I appreciate a quick reply from US expats pertaining to hypho tax before i make a decision. I was offered a salary spreadsheet in the offer package and it shows a reduction of $2000 to my monthly pay due to the hyphothetical tax, in addition to $ 1000 IRS withholding tax. I fully understand the IRS withholding tax but not so much on hypho tax. My questions:
1) Based on my goggle search, Hypho tax is the amount of tax one would pay if one works in the US instead of in Saudi with the same Base pay. So I am not so sure, why should the "tax benefit" of working in Saudi Arabia is used to reduce my pacycheck? Isn't that one of the key reasons of working in Saudi Arabia? Views?
2) How does the hyphothetical tax work in real life for you all there? In practice, will the $2000 be taken out from my paycheck every month as hypho tax as the spreadsheet says, or when I arrive in Saudi Arabia, the HR/tax Advisor in Saudi Arabia will recalculate the new ACTUAL hypho tax instead of the estimated $2000 shown in the spreadsheet now and then, the new number will be used to reduce my monthly paycheck?
3) Will I get back the $2000 or a portion of this hypho tax when i actually file my tax?
JH
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jrs
Senior Member
Posts: 379
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Post by jrs on May 19, 2023 14:37:42 GMT
The hypotax is confusing calculation. It fluctuates month to month- not sure if anyone fully understands unless u work in US payroll here. Plus there are vey few Americans here vs other nationalities, which are on the global payroll, so you may not get a response from anyone that can articulate or fully understand the hypo tax calculation.
I believe the key figure you need to keep in mind is the total federal tax you end up paying after filing the 1040 divided by the total compensation you receive from aramco, including base, expat prem, commodity adj, and repat allowance less 401K, health insurance, hypotax, and rent.
Mine fed tax paid/(total aramco comp less insurance,401k and rent, hypotax), essentially my effective federal income tax rate while w/ Aramco, avg 5 to 7 percent from 2008 to 2013. I’m recent rehire and have not been here a year yet or filed return yet since returning to aramco but expect my “effective tax” to be about the same with aramco as before. I’m married and have three children.br]
The annual bonus is in separate bucket not sure how much is withheld. Aramco didn’t offer bonuses when I was here before.
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JH
Member
Posts: 26
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Post by JH on May 19, 2023 16:26:14 GMT
The hypotax is confusing calculation. It fluctuates month to month- not sure if anyone fully understands unless u work in US payroll here. Plus there are vey few Americans here vs other nationalities, which are on the global payroll, so you may not get a response from anyone that can articulate or fully understand the hypo tax calculation. I believe the key figure you need to keep in mind is the total federal tax you end up paying after filing the 1040 divided by the total compensation you receive from aramco, including base, expat prem, commodity adj, and repat allowance less 401K, health insurance, hypotax, and rent. Mine fed tax paid/(total aramco comp less insurance,401k and rent, hypotax), essentially my effective federal income tax rate while w/ Aramco, avg 5 to 7 percent from 2008 to 2013. I’m recent rehire and have not been here a year yet or filed return yet since returning to aramco but expect my “effective tax” to be about the same with aramco as before. I’m married and have three children.br] The annual bonus is in separate bucket not sure how much is withheld. Aramco didn’t offer bonuses when I was here before. Thank you JRS for your quick response! I wish I could meet you somedays if I choose to go there!. Hypo tax is a Significant number, so we need to understand it. Based on your response: 1) Saudi Aramco DID take out hypotax from your paycheck & obviously the more they take out hypotax from your paycheck the less your take home pay is. 2) The amount of hypotax they take out from your paycheck fluctuates every month, correct? If this true, HR/Tax advisor in Saudi Arabia must be calculating this amount monthly. Correct? Do you think the IRS tax withholding + Hypotax = Total tax you owe at the end of the year? which means you should get the refund when you file the tax if what you withheld is too much than actual tax owed. However, if that was the case, why didn't they withhold everything under IRS withholding tax instead of breaking into two components (IRS tax withhold and Hypotax)? Somone even mentioned that hypotax didn't even appear in the W2 unlike the IRS tax withholding which makes me even more confused if this is true! JH |
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Post by ghzhujwmao on May 19, 2023 19:44:01 GMT
I believe the hypotax is the tax withholding showing on W-2. In the meantime, Aramco reimburses almost all of the hypotax. In a regular month, the reimbursement is more than 90% of the hypotax. There are extra hypotax and reimbursement when you are paid for Repat or Education Assistant. So I would suggest you just assume all tax is covered when you consider the offer. Certainly, your final tax could be higher than the hypotax due to your other income lifting up your tax bracket. If the small difference between hypotax and reimbursement swings your decision, you probably should not come here.
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JH
Member
Posts: 26
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Post by JH on May 19, 2023 19:57:51 GMT
deleted
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JH
Member
Posts: 26
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Post by JH on May 19, 2023 20:03:20 GMT
I believe the hypotax is the tax withholding showing on W-2. In the meantime, Aramco reimburses almost all of the hypotax. In a regular month, the reimbursement is more than 90% of the hypotax. There are extra hypotax and reimbursement when you are paid for Repat or Education Assistant. So I would suggest you just assume all tax is covered when you consider the offer. Certainly, your final tax could be higher than the hypotax due to your other income lifting up your tax bracket. If the small difference between hypotax and reimbursement swings your decision, you probably should not come here. Million Thanks ghzhujwmao, this is super GREAT news! It made a big difference to me cause the amount of hypo tax taken out from each paycheck as shown on offer letter is SIGNIFICANT; and to know that I will be getting back some portion of hypotax or even all of hypotax just made my day! I am OK to give up (pay)the IRS witholding tax, but to pay Hypotax as well is just too much to bear! Thank you again. JH |
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jrs
Senior Member
Posts: 379
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Post by jrs on May 19, 2023 20:44:06 GMT
Agree, if a few thousand here and there on a potential U.S. federal tax liability is this much of concern for you, you prob should pass on offer.
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Post by ghzhujwmao on May 19, 2023 21:32:10 GMT
I think my answer is off and JRS’s answer is more accurate. So please use his as reference. There are three items regarding tax in the paystub, hypo tax deduction, tax reimbursement and tax withholding deduction. Normally, the hypo tax deduction is very close to reimbursement. The tax withholding deduction also takes money off your pay but the amount of withholding is less than the tax you should pay.
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JH
Member
Posts: 26
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Post by JH on May 20, 2023 2:05:58 GMT
I think my answer is off and JRS’s answer is more accurate. So please use his as reference. There are three items regarding tax in the paystub, hypo tax deduction, tax reimbursement and tax withholding deduction. Normally, the hypo tax deduction is very close to reimbursement. The tax withholding deduction also takes money off your pay but the amount of withholding is less than the tax you should pay. Thank you guys for your kindness! If I go there, I shall repay your kindness by doing the same thing to future applicants as well. Hmmm... a bit confused from the terminology you all used. All I know is from the spreadsheet sent to me by HR. Per HR's spreadsheet, on monthly basis: my Base pay is X, US federal income tax withholding is $1000, Hypothetical tax deduction is $2000. Therefore, my take home is X - 1000 - 2000, so hypo tax is a decent chunk of $. Two key points I can roughly summarize from your previous messages: 1) this $2000 is not a fixed number, it fluctuates month to month. 2) I may even get back some/all of $2000 on a monthly basis. Please comment/add based on your experience if my description is inaccurate/off base. Thnx. JH |
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Post by ghzhujwmao on May 20, 2023 10:42:04 GMT
After digging into the numbers and doing some online research, I think I know better of the system. Hypo tax is collected by Aramco and calculated based on your base salary (including expat premium, $120K exemption and the standard deduction). Aramco then is responsible for all the tax you should pay to IRS (excluding bonus), which it reimburses to your account and then takes out to give to IRS (withholding). In a normal month, these three numbers are very close (hypo tax, reimbursement, and withholding). In a month when you receive repat or EAP, the hypo tax does not change but reimbursement and withholding jump up. In summary, base salary is not tax protected but repat and EAP are. The reason is that you have to pay tax for the base salary if you are in the USA, but you won't do repat or send your kids to boarding school. Therefore, Aramco will pay the tax for repat and EAP so that you won't incur a loss on these two items. Sorry for the confusion caused earlier by my post.
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JH
Member
Posts: 26
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Post by JH on May 20, 2023 12:43:33 GMT
After digging into the numbers and doing some online research, I think I know better of the system. Hypo tax is collected by Aramco and calculated based on your base salary (including expat premium, $120K exemption and the standard deduction). Aramco then is responsible for all the tax you should pay to IRS (excluding bonus), which it reimburses to your account and then takes out to give to IRS (withholding). In a normal month, these three numbers are very close (hypo tax, reimbursement, and withholding). In a month when you receive repat or EAP, the hypo tax does not change but reimbursement and withholding jump up. In summary, base salary is not tax protected but repat and EAP are. The reason is that you have to pay tax for the base salary if you are in the USA, but you won't do repat or send your kids to boarding school. Therefore, Aramco will pay the tax for repat and EAP so that you won't incur a loss on these two items. Sorry for the confusion caused earlier by my post. Thanks ghzhujwmao, very insightful and I think based on your info, we are about to unravel "the mystery of the universe of taxes" on hypo tax  . It may be just coincidentally, but I ran turbo tax and the numbers happened to tie to the spreadsheet by HR: 1: IRS withholding tax is due to Base Pay minus 401 K contribution (Just like in the US, I assumed 401K is pretax, please comment); and Hypotax deduction/withholding is due to expat premium + commodity service difference + Allowances (EAP travel + Annual Education Assistance). 2: Since you mentioned earlier that expat premium + commodity service difference + Allowances are tax protected (i.e. fully reimbursable to employees), ultimately all of hypo tax withholding will be given back to employes so the net effect to employee of hypo tax is 0 3: Which brings to the last remaining questions: why withhold hypo tax in the first place if you are giving it back to employees?; and why all these issues surrounding hypo tax on how it is derived and that it is ultimately given back to employee not being made explicit to future employees in the spreadsheet in the offer package?
Any views, comments on above 3 points? And million thanks again for your generosity helping out all future employees not just me (as Warren buffet said, don't invest in things you don't understand, but now I am ready to consider "investing" since I understand better"
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Post by ghzhujwmao on May 20, 2023 16:32:19 GMT
The numbers on my paystub tell a different story from Turbotax you mentioned.
1. the withholding went up a lot when I received the allowance, so withholding is strongly tied to the allowance. The reimbursement also went up with the withholding, but hypo tax stayed the same as in other months.
2. hypo tax is collected by Aramco and goes to the company's pocket. Basically, Aramco says "Let me collect this amount of tax you should pay assuming the job is in USA, and I will handle all the taxes for you". Hypo tax is slightly different from the tax reimbursement even in the regular months, due to rent, medical insurance, and tax over tax reimbursement, etc. So they are not equal. In regular months, the reimbursement is slightly lower than the hypo tax.
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JH
Member
Posts: 26
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Post by JH on May 20, 2023 16:57:16 GMT
The numbers on my paystub tell a different story from Turbotax you mentioned. 1. the withholding went up a lot when I received the allowance, so withholding is strongly tied to the allowance. The reimbursement also went up with the withholding, but hypo tax stayed the same as in other months. 2. hypo tax is collected by Aramco and goes to the company's pocket. Basically, Aramco says "Let me collect this amount of tax you should pay assuming the job is in USA, and I will handle all the taxes for you". Hypo tax is slightly different from the tax reimbursement even in the regular months, due to rent, medical insurance, and tax over tax reimbursement, etc. So they are not equal. In regular months, the reimbursement is slightly lower than the hypo tax. Million thanks! On item 1: when you said "withholding", did you mean hypo tax withholding or IRS tax withholding? Also it would be super great if you don't mind commenting briefly on item 1, 2, and 3 of my previous email! |
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jrs
Senior Member
Posts: 379
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Post by jrs on May 20, 2023 17:31:16 GMT
I never heard of “pretax 401K”? 401K is tax deferred not pretax, which means it is taken out of pay ck, set aside and not taxed now but taxed when you withdraw at retirement.
Yes, Aramco does this for u just like US companies.
In short, your effective income rate will likely decrease from 20 to 25 percent range to 5 to 8 percent range but unlikely to zero working for Aramco vs working in US. Effective income tax rate is the actual final income tax you pay for the year (withholdings less refund or additional tax owed after completing 1040) dividend by total annual compensation.
In the end, you will most likely pay some but significantly less federal income tax, unless you have like 7 kids or some other huge deductions
I’d be much more concern what your current base pay or net pay assuming you’re employed, vs Aramco base & prem and if u & your family will be happy here vs focusing on these small hypotax calculations. It is immaterial on the grand scheme of other items to consider in your decision. If these, few thousand in paying or not paying taxes, weighing so heavily and your continued asking, it is unlikely you will be happy here.
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JH
Member
Posts: 26
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Post by JH on May 20, 2023 21:35:10 GMT
I never heard of “pretax 401K”? 401K is tax deferred not pretax, which means it is taken out of pay ck, set aside and not taxed now but taxed when you withdraw at retirement. Yes, Aramco does this for u just like US companies. In short, your effective income rate will likely decrease from 20 to 25 percent range to 5 to 8 percent range but unlikely to zero working for Aramco vs working in US. Effective income tax rate is the actual final income tax you pay for the year (withholdings less refund or additional tax owed after completing 1040) dividend by total annual compensation. In the end, you will most likely pay some but significantly less federal income tax, unless you have like 7 kids or some other huge deductions I’d be much more concern what your current base pay or net pay assuming you’re employed, vs Aramco base & prem and if u & your family will be happy here vs focusing on these small hypotax calculations. It is immaterial on the grand scheme of other items to consider in your decision. If these, few thousand in paying or not paying taxes, weighing so heavily and your continued asking, it is unlikely you will be happy here. Thanks jrs, we are on the same page! Pretax 401k means exactly what you described above. WRT last point you mentioned, no doubt hypotax matter should not be the main deciding factor to join/not to join, however it is a decent amount of $ (> 20K) and I would not want to just dismiss it, for sure it can help in my decision making process if it is fully reimbursable as ghzhujwmao indicated earlier. And if you have time to briefly comment on each of the 3 points in my previous msg, that would be super awesome!! |
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