H1B visa: Do I have to pay taxes on equity encashed from a company based abroad?

Forum|Forum|1 year ago
July 7, 2024
2 replies
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Hello,

I am an Indian citizen and have been working as a Research Scientist on an H1B (lottery exempt) visa at a US university since November 2023. Prior to this, I was on a J-1 visa (Research Scholar) at a national lab in the US starting in 2018.

Before moving to the US, I was a consultant at a startup in Singapore and was awarded equity in the company. The equity vested over three years, and I am now eligible to cash it out. I would like to transfer the proceeds to my US bank account.

Since Singapore does not tax capital gains, I do not owe any taxes on this equity there.

I would like to know if I need to pay taxes on this equity in the US. If so, how should I report it to the IRS? Additionally, is receiving such income legal given my current H1B visa status? I am expecting to receive permanent residency in the US later this year. Should I wait to receive my green card before transferring the equity money from Singapore to my US bank account?

Regards,
RD

Not A Product Question

Anonymous_

Employee

No text available

roalddahl14Author

It is not a duplicate question. This question is about capital gains. The other question is about royalties.

Anonymous_

Employee

No text available

pk12_2

Employee

@roalddahl14 what I gather from your post is that :

(a) you are a Resident Alien for tax purposes --- you file your return on form 1040 ( supported by TurboTax ) and are taxed on your world income

(b) You have RSU ( or similar restricted stock grants ) from a foreign entity *( based in Singapore ). These are now restriction free (vested ). Assuming that you have not recognized these stocks ( either in Singapore , India or in US ), your basis is this is probably zero -- unless your employer at the time showed then FMV as income and was already taxed. Need details on this .

(c) Because you are Resident for Tax purposes and taxed on world income, when you dispose of these shares/ equity your gain is taxable income to the US. It is immaterial whether you are a Resident for Tax purposes or Immigrant ( GreenCard ) or citizen, you are still taxed on world income.

Hope this helps -- for more specific answer , please provide more details of the equity grant, basis, any taxes paid etc. etc.

I await your response

roalddahl14Author

Hello,

Thank you for your response. It is very helpful. I was given the equity in 2018 before I moved to the US. The equity was vested in 2021. I did not encash it then because I did not receive any documentation from the company about the value of the equity at that time. I was also not aware if I needed to pay taxes once the equity was vested. I asked the company and they said this is an "incentive option".

What kind of documentation I would need from the Singapore-based company for taxation purposes? Do I have to pay taxes since 2021?

pk12_2

Employee

@roalddahl14 you say " incentive option" -- does this mean a warrant / promise from the entity to let you buy XXX shares at US$ YYY each ( irrespective of market value ) or actual shares handed over to you with conditions ( Restricted ) as a payment / bonus in kind ?

If the latter, then from US tax perspective , since these were owned by you when you entered US, your basis would be at whatever you got it at ( generally at FMV on the award date -- because the awarding entity would put it on their books as an expense at FMV ). Any gain or loss will have to be recognized for US taxes when you dispose the shares.

Does this make sense ?