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.
