RSU Double Taxation included both in Foreign Income and W2

Forum|Forum|2 years ago
February 14, 2024
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Hello Team,

I had some RSUs vested in Feb 2023 ( US tax resident in 2023 ). The income from the RSU was included in my W2. However part of the RSU income was also taxed in India ( for the time I was in India and a India tax resident in 2021 and 2020). I had moved internally from India to US within the same organization. Now I have 3 questions

1. I have entered the Foreign Income ( RSU income) and the Foreign Taxes Paid ( Tax paid on India RSU) in Turbotax relevant sections. Calculations were provided by my India employer. Is this correct ?

2. However this led to double counting of RSU income ( Both in my W2 + Foreign Income). Can I make a negative entry somewhere in Other Income. Can you tell me where in Turbo Tax

3. Do I need to fill Form 8833. My foreign income is 4500 ( RSU income), 4500 ( Other Wages Received), 3000 ( Other Interest Income outside US). Since this totals more than 10,000 will I still get an exemption from 8833, since the double taxation amount is only 4500 ( less than 10,000)

pk12_2

Employee

@pankaj4friends , I am not sure that I understand the situation fully and perhaps need some explanation from you. What I get is that

(a) your employer in India granted RSUs to you in 2020, while you were employed in India

(b) in 2022 you moved to UJS via an internal company transfer ( H1-B / L-1 or ? ), thus becoming a US resident for tax purposes in 2023

(d) your employer ( US) recognized vesting by including the FMV of the vested ( / granted ? ) RSUs in your W-2.

(e) here is my confusion --- thought that at the time of granting RSUs, your employer recognizes this by including as earned income at FMV and grantee recognizes the mark-to-market by including the gains per year and paying taxes thereon OR waits till vesting and recognize the whole gain ( three years ) and payingn the taxes on this. So how / why did your employer include the yearly / total gain in W-2? And if the total gain was being recognized by your US employer ( US arm of the Indian entity), how does India IT dept get involved -- and if indeed India was due taxes because part of the gain occurred while you were in India ( assume 1/3rd of the total three year gain ? ) why are the amounts that you show become equal? What are "other" wage income -- etc. etc.

Please can you correct/ explain the situation and/or my understanding ?

I will circle back once I hear from you

pankaj4friendsAuthor

The employer grants the RSU at market rate, no tax at allocation since they are not vested.

Those RSUs vest 1/3rd every subsequent year. The employer taxes the entire vesting amount and includes that in the tax return, Feb of every year. Please note that every year will have RSUs vesting from last 3 years (1/3rd each year from last 3 years).

So in 2023 Feb – I got the below RSUs vested

Feb 2020 – 1/3rd - Allocated in India, for my India work and hence my India employer taxes the component, pro-rated for the number of days I was in India post allocation

Feb 2021 – 1/3rd - Allocated in India, for my India work and hence my India employer taxes the component, pro-rated for the number of days I was in India post allocation

Feb 2022 - 1/3rd - Allocated in India, for my India work and hence my India employer taxes the component, pro-rated for the number of days I was in India post allocation

May 2022 I move to US and become a US tax resident.

Feb 2023 when the above 3 vest, US employer says that we see all of this above 3 years as Income and will include this in your W2, even if it means double taxation. Bunch of explanation around required by US rules .

Question : why are the amounts that you show become equal? What are "other" wage income -- etc. etc.

Answer : Wage Income is deferred pending bonus which was paid by India subsidiary in Feb 2023 for the year 2022 , the amounts are equal incidentally with RSU, no relation to each other.

I am including that deferred bonus in both my India and US tax returns for 2023. I provided my total foreign income information to give you a break-up of the foreign income I have in 2023 and whether that will require me to file Form 8833 or I can claim exemption from From 8833 (Since the Double taxed amount is less than 10,000)

pk12_2

Employee

@pankaj4friends , having read through your posts ( and even though I don't quite understand why your employer is including vested RSUs from prior to your becoming a Resident for tax purposes ( probably in Oct/Nov of 2022-- 183 days after your entry in May 2022, assuming you had no prior stay in the US during two prior years). Leaving that aside , what you are saying is that your W-2 for 2023 includes RSU vested amounts as income i.e. the total allocation at FMV for 2023 ( yes ? ). While it does not make a whole bunch of sense to me but I suppose it is what it is.

When you enter your W-2 for the whole amount ( i.e. your salary plus bonus for 2022 plus RSU three year total ), US will tax you for the total amount. You need to file a form 1116 ( TurboTax under "Deductions and Credits "; "i will choose what I work on " ; choose " foreign tax credit"; and after a few follow on screens , enter your foreign income i.e. total amount of RSU income ( because your employer added all this to your W-2 as income ) -- this is the sum of all that has been taxed by India; the enter the taxed paid during the last three years . And go on from there . Personally I think , this is all wrong ( assuming that your articulation represents the facts and circumstances ) and can be construed as non-factual. Because of this I would suggest consultation with a tax professional familiar with international taxation.

That is my view

Is there more I can do for you ?