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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22656
Experience:  Taxes, Immigration, Labor Relations
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I am an Indian Citizen and US Green Card Holder (Was in US

Resolved Question:

I am an Indian Citizen and US Green Card Holder (Was in US for 8 yrs). However, I am now empoloyeed in India (as my US company asked me to go to India) for the past few years.
I file my US taxes regularly (However, no salary income is reported for the past couple years since I am getting paid in India and paying taxes in India).

I was issued stock options from the company (10% when I was in US and 90% after I came to India). Ours is a privately held company and has offered to buy back options this month.
Tax advisers for the company want to withhold full taxes both in US and India.
Here are my 2 Qs.
1. Is it correct for the company to withhold full tax in both countries?(India company is a subsidiary of US company. Money is coming from US company)?
2. Since double taxation treaty between India and US exist, how should this be handled?
3. I feel tax should be withheld in India and file for foreign tax credit in US. Is this correct?

Please advise
Ravi XXX@XXXXXX.XXX
Submitted: 4 years ago.
Category: Tax
Expert:  Lev replied 4 years ago.

As you are a green card holder - you are required to file your tax return based on income level - and are required to report all your income worldwide.

 

In additional - you might be eligible for a foreign earned income exclusion.

As an US person living abroad - you may claim a foreign earned income exclusion.

The person may qualify for the foreign earned income exclusion - he/she should:
-- Work and reside outside the United States for at least 330 days during the year, or
-- Meet either the Bona Fide or Physical Presence tests.
If the person qualifies, he/she may exclude up to $91,400 (2009 in foreign wages -- plus housing allowances (limited to 30% of the earned income exclusion).

To receive that exclusion - the taxpayer should file either form 2555 or 2555EZ.

Here are forms you likely need:

Please be aware that - the exclusion above will not affect self-employment taxes - only income taxes. Only earned income is excludable. For instance dividends, investment income, etc - are not excludable.

Please also be aware that this credit is not granted automatically - you need to file a tax return and claim the credit.

 

If the same income is taxable in the US and in India - you may claim a credit for taxes paid in India on your US tax return.

To determine the amount of credit -the person should use the form 1116 and attach it to his/her tax return. - http://www.irs.gov/pub/irs-pdf/f1116.pdf

Here are instructions - http://www.irs.gov/pub/irs-pdf/i1116.pdf

 

Let me know if you need any help.

 

Customer: replied 4 years ago.
Thanks for the reply. I need more clarification please.

1. This entire income is in response to my surrendering the stock options to the company. Company is paying the money as a perquisite. Is this income eligible for foreign tax credit?

2. Can the company legally withhold income taxes for the same income in both US and India? What can I do to stop the company from withholding in US (As I am a tax resident in India, it is my understanding that India has the claim for this tax).

3. Shouldn't the company withhold taxes in US (for options vested in US) and taxes in India (for options vested in India)?. Or can they just withhold in India and when I file my taxes in January in US, I will show this income and take appropriate taxe credit using the form 1116?

4. WIll you be able to help me file taxes in January? What would be your fee?

Please advise.

Regards,
Ravi
Expert:  Lev replied 4 years ago.

Hi Ravi,

 

1. This entire income is in response to my surrendering the stock options to the company. Company is paying the money as a perquisite. Is this income eligible for foreign tax credit?

Yes - if the same income is taxable in India - the purpose of a foreign tax credit - to avoid double taxation.

2. Can the company legally withhold income taxes for the same income in both US and India? What can I do to stop the company from withholding in US (As I am a tax resident in India, it is my understanding that India has the claim for this tax).

Yes - the company has to withhold taxes fro both based on your tax liability for both countries and because your company has business activities in both countries.

If withholding is more than your actual tax liability - you may file your tax return and claim a refund.

3. Shouldn't the company withhold taxes in US (for options vested in US) and taxes in India (for options vested in India)?. Or can they just withhold in India and when I file my taxes in January in US, I will show this income and take appropriate tax credit using the form 1116?

The company must comply with both countries laws.

In the US - you are treated as a resident (because you are a green card holder) - and payment to you is subject of mandatory withholding from all your income. In India - you are a resident - and all payments to you should be considered.

Because the company operates in both countries - it should comply with laws in both countries.

The reason of your situation is because you are tax resident of both countries.

Withholding - is not your actual tax liability - your tax liability will be determined at the tax mine when you file your tax return.

You need to file your US tax return and claim a refund if your actual tax liability is more than withholding.

 

4. WIll you be able to help me file taxes in January? What would be your fee?
According to Just Answer rules - I may not contact customers outside this site and may not establish a professional-client relationship.

You are welcome to ask any questions you will have on this site.

 

Let me know if you need any help.

 



Edited by LEV on 11/2/2009 at 5:46 AM EST
Customer: replied 4 years ago.
Thanks LEV..!
Sorry to be a pest. But just 2 more questions.
1. In your last statement (

You need to file your US tax return and claim a refund if your actual tax liability is more than withholding.), is the 'actual tax liability' includes the tax I paid both in India and US?

The reason I am very concened is that between US and India, they will be withholding about 70% as tax. If it is not handled well, it may be a long time before I see some of that money again.! .

2. Is it reasonable to assume that I can get refund in US (for the taxes I paid in India)?

 

3. Can you help prepare my taxes in January 2010?

 

Thanks for the help. As soon as I get your response. I will 'Accept'. Thanks a bunch.!

Expert:  Lev replied 4 years ago.
1. In your last statement (

You need to file your US tax return and claim a refund if your actual tax liability is more than withholding.), is the 'actual tax liability' includes the tax I paid both in India and US?

The reason I am very concerned is that between US and India, they will be withholding about 70% as tax. If it is not handled well, it may be a long time before I see some of that money again.! .

Your actual US tax liability is determined when you file your tax return. It is based on your total income, deductions and credits. Your US tax liability generally doesn't depend on your India tax libility.

If withholding will be more than your total tax liability - you will claim a credit.

 

2. Is it reasonable to assume that I can get refund in US (for the taxes I paid in India)?

Your foreign income tax credit may not be more that your UD tax liability on the same income - so if your tax in India on the same income is more than your US tax on that income - you will not have US tax liability on that income.

But you may not expect the IRS to pay you back taxes paid to India - that should be an issue with India tax authorities.

 

3. Can you help prepare my taxes in January 2010?

Unfortunately - I may not prepare your tax return - according to Just Answer rules - I may not contact customers outside this site and may not establish a professional-client relationship.

You are welcome to ask any questions you will have on this site and I will help you to verify your calculations if needed - but avoid to post any personal information.

 

Let me know if you need any help.

 

Customer: replied 4 years ago.
Thanks LEV.
It appears that I will be 34% withholding in US (25% Plus FICA/Social Security). In India, it will be 31%.

So, I can claim 31% tax refund in US.. Right?

Does 'JustAnswer' help with the tax filing?

Thanks again for the help.
Expert:  Lev replied 4 years ago.

foreign tax credit will cover only income tax - you may not expect FICA taxes to be refunded to you.

However - if FICA taxes were applied - the payment is treated as wages - thus - earned income - and you may claim a foreign earned income exclusion.

 

JustAnswer doesn't provide income tax return preparation service. The JustAnswer Site is a venue for informational and educational purposes to allow Customers to ask questions and Experts to answer them.

Posts are for general information, and are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), and do not establish a professional-client relationship.

 

I will be glad to clarify tax issues for you - but may not provide tax preparation service.

 

Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22656
Experience: Taxes, Immigration, Labor Relations
Lev and 4 other Tax Specialists are ready to help you
Customer: replied 4 years ago.
Thanks for the help LEV.!
It does clarify to me. This may not be the response I was looking for. but now I understand the situation lot better.

Thanks again.

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