How to claim credit on foreign taxes paid on dividend income that are not reflected on 1099-DIV form ?

[srtadi]

I am a US citizen residing in India presently. While I was employed with an Indian subsidiary of a US multinational company I received RSUs of the parent US company as part of my compensation. These stocks (traded on US stock exchange) were deposited in an account with a financial institution (E-Trade) in the US just like it is done for all the employees. At the time of vesting of these shares the taxes on these were paid by the Indian subsidiary in India since they are treated (rightly) as India sourced income by selling some of the shares to offset the taxes. In my US tax returns for those years I had declared my salary and the RSUs as foreign earned income and claimed Foreign tax credit. All good.

This year I have received dividend income on these shares and I have paid taxes on the dividends in India since the source of this income was from the RSUs that were earned by me from the Indian employer. Since I am a US citizen the financial institution (E-trade US) has generated the 1099-DIV form but obviously with the “Foreign Taxes Paid” as 0 in box 7 since the taxes were paid by me in India and not something that were withheld.

In my US tax returns for this year, I need to claim the foreign tax credit for the taxes paid in India to avoid double taxation. I am aware that I must use the Foreign Tax Credit section (Form 1116) to claim the credit.

My question is - how do I report the foreign tax paid on the dividends ?  Should I manually enter this 1099-DIV in the “Investments and Savings” section and enter the tax amount  I paid in India in box 7 (Foreign Tax paid) ? If so, wouldn’t the 1099-DIV copy that IRS has with an empty  foreign tax paid box mismatch with what I will be providing causing an issue with my federal returns ? What is the right way to do this ? Thanks.

[DianeW777]

Yes, you can receive the Foreign Tax Credit. Do not enter the taxes paid to India in the 1099-DIV since it was not included there. Instead follow the steps in the link below and notice the question 'Choose the type of income' and select 'General category of income' 

1. Add a country > Continue to the screen 'Foreign taxes paid in India' > 
2. Enter your tax paid to India in the box 'Foreign Taxes on Other Income' >
3. Continue to the screen 'Taxes paid or accrued' and select 'Foreign taxes were paid' > 
4. Continue to enter 'Your country of residence' > Continue to the screen to select 'No, adjustments to the foreign tax carryover amounts are not necessary.' 
5. Continue to answer this question again for AMT > Continue to finish. You will see the credit on Schedule 3 and carried to Form 1040, line 20.
6. See the link below for additional information.
   • Where do I enter the Foreign Tax Credit (Form 1116) or Deduction?

[srtadi]

Thanks DIanne. I tried what you suggested and got the below error ("Needs review") during the final Federal Review step.

"Form 1099-DIV: Box 7 foreign copy link is linked to a Form 1116 that does not have the category of income 'passive income'. Either change the copy of Form 1116 to linkto or manually enter the foreign tax information of the 1116 Comps Worksheet. ........."

I suspect this error is due to the fact that dividend income is passive income whereas I had used the category of "General category of income" as you had suggested in your previous response. Can you please suggest how to resolve this ? Thanks.