Form 1116 needs to filed to get foreign tax credit. That takes care of the foreign income which I declare in this form and that foreign income does not get taxed again in the US. Remember I have to add Foreign income too in the US returns if I have to get the credit because of the limits of the foreign credit calculations.
It still does not remove the amount added in my W2 and I cannot claim refund of the tax deducted in India ( because the income was generated when I was in India )
I checked with a tax consultant, apparently it is a problem with RSUs when you move to US. Same problem happened with my colleague who moved from Canada to US. They have suggested a negative income to be added in Other Income ( Misc Income) . That does the following 1. Double income from W2 removed 2. By filling Form 1116 I get credit for the taxes I paid in India and do not get double taxed here.
What I am not clear is whether I have to file Form 8833. I know Turbo tax does not have Form 8833. This is my only pending query now. Since the amount is less than 10,000 USD can I claim exemption from Form 8833?
Just as an aside if you have capital gains from another country accumulated over the years and you sell after coming to US, the full capital gains will be taxed at US rates. ( you can still claim foreign tax credit but because of the way US taxes foreign equity, you can never get back the full amount ). This is same for RSUs allocated outside US, they will still be taxed in the US and the payroll team simply adds the full amount. That is why in most relocation contracts there is protection against double taxation. In my case I cannot claim double taxation since the tax team says you can claim it back in US, I am just trying to figure out how.
