Double tax on RSUs granted while employed in USA later vested in India after international transfer

Forum|Forum|2 years ago
January 31, 2024
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Hi,
While working in USA I received RSU grants later after 6 months I transferred to India in the same company.
Since this is a continuation of employment my RSUs vested while being in India payroll after 6 months.
As I understand, for Federal taxes, RSUs are taxed based on time of employment being in USA; in this case 50% time the RSUs are on USA payroll.

While withholding taxes on RSU vesting, for Federal taxes my company considered 50% as taxable RSU income and withheld shares accordingly only.
Whereas for India 100% is considered as taxable RSU income, and taxes withheld accordingly but by subtracting/adjusting my USA/Federal taxes as a credit.

However in the USA W-2, I see that RSU income is reported is 100% RSU value, which makes me to pay double taxes for the full RSU income (in USA once and in India once).
What are the options I have in this situations?
1. Can I ask my employer to correct to reflect the taxable RSU income rather than the actual received value?
2. While filing the taxes can I adjust the RSU taxable income though W-2 has different.
3. Do I need to file as it is and claim for foreign tax credit either in USA or India (I am tax resident in both, this time).

Thanks in advance.

Not A Product Question

Best answer by AmyC

The US and India have a tax treaty, India - Tax Treaty Documents | Internal Revenue Service includes article 25 relief from double taxation. In Claiming Tax Treaty Benefits most people need to file form 8883.

The payee does not have to file Form 8833 for any of the following situations:

The payee can claim a reduced rate of withholding tax under a treaty on interest, dividends, rent, royalties, or other fixed or determinable annual or periodic income ordinarily subject to the 30% rate.
The payee can claim a treaty exemption that reduces or modifies the taxation of income from dependent personal services, pensions, annuities, social security and other public pensions, or income of artists, athletes, students, trainees, or teachers. This includes taxable scholarship and fellowship grants.
The payee can claim a reduction or modification of taxation of income under an International Social Security Agreement or a Diplomatic or Consular Agreement.
The payee is a partner in a partnership, or a beneficiary of an estate or trust and the partnership, estate, or trust reports the required information on its return.
The payments or items of income that are otherwise required to be disclosed total no more than $10,000.

For recent changes to the requirements for filing Form 8833, refer to the instructions attached to the Form 8833.

Either way, let's get the income out of your tax return. You need to determine the non-taxable US portion and enter it under Other Income as a negative with a description. Follow these steps:

Log into your return
Federal
Click on Income
Scroll to the bottom section, Less Common Income
Select Miscellaneous income, 1099-A, 1099-C, start
Select Other Income
Did you receive other wages? Yes
Continue
Household employee? Continue
Sick or disability pay? Continue
Any other earned income or wages? Yes
Enter source of Other Earned Income
Select Other
Continue
Enter description RSU double taxed or something that makes sense.
Enter amount being double taxed as a negative

If you meet one of the exceptions above, you can efile your tax return as is.

If not, you will need to mail your return and attach Form 8833. TurboTax does not directly support Form 8833 but you can use TurboTax to prepare your tax return to print and mail with Form 8833 attached. (You can access the form HERE.) You may need to prepare the form for your state return as well.

Best wishes!

AmyC

Employee

1. Yes, your employer can issue a corrected w2 with the correct amounts.

2. You can do anything you want but you should not

3. You can file for the foreign tax credit but getting a new w2 is simplest.

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sateesh752Author

Hi Amy,
Thanks for your response.
So far my payroll support team saying that as per IRS, W-2 can contain only "reportable income" which is full value of RSUs vested. But, no clarification why taxes are not withheld on full RSU income.
Seems like this case wont suit for foreign tax credit also.

If Empoyer says they dont need to correct, while filing USA taxes how can I show true taxable income? Are there any ways?

Regards,
Satish.

AmyCAnswer

Employee

The US and India have a tax treaty, India - Tax Treaty Documents | Internal Revenue Service includes article 25 relief from double taxation. In Claiming Tax Treaty Benefits most people need to file form 8883.

The payee does not have to file Form 8833 for any of the following situations:

The payee can claim a reduced rate of withholding tax under a treaty on interest, dividends, rent, royalties, or other fixed or determinable annual or periodic income ordinarily subject to the 30% rate.
The payee can claim a treaty exemption that reduces or modifies the taxation of income from dependent personal services, pensions, annuities, social security and other public pensions, or income of artists, athletes, students, trainees, or teachers. This includes taxable scholarship and fellowship grants.
The payee can claim a reduction or modification of taxation of income under an International Social Security Agreement or a Diplomatic or Consular Agreement.
The payee is a partner in a partnership, or a beneficiary of an estate or trust and the partnership, estate, or trust reports the required information on its return.
The payments or items of income that are otherwise required to be disclosed total no more than $10,000.

For recent changes to the requirements for filing Form 8833, refer to the instructions attached to the Form 8833.

Either way, let's get the income out of your tax return. You need to determine the non-taxable US portion and enter it under Other Income as a negative with a description. Follow these steps: