* I was an employee of company X up until Nov 2016.
* Then I moved countries, and transferred to the India Branch of the same Firm X.
* Now ESPP and RSU s that vested in March of 2017, were reported by the company X on India Tax Forms
* And they did not issue a W2 (as I was neither an employee of X (USA) , nor a resident of USA).
* But Charles Schwab reported the same on a 1099-B.
For the ESPP:
* Tax was deducted in India.
* There is a double taxation treaty between India and USA that allows for tax to be deducted at one of the two places (whichever is higher).
* Cost Basis was reported higher to show only actual gains post deduction of shares sold
Now how do I show that since tax has been deducted in India, I am eligible for a refund?
Since you paid tax in a foreign country on your income, you can claim either a foreign tax credit OR a foreign tax deduction. If you are not itemizing, you will want to use Form 1116 to claim the Foreign Tax Credit. If you are itemizing, it is worth checking both ways.
The foreign tax credit goes directly against your tax liability to reduce it on line 13b of the return. It is NOT a refundable credit. It cannot reduce your tax liability below zero. Since you worked in the USA, you would have income and taxes withheld. That money withheld could generate a refund due to your decreased tax liability.
If the foreign tax is reported on a 1099-B, then the IRS will have a copy. In any case, it is a good idea to keep your proof of having paid foreign tax.
Let me help you navigate the 1116.
1. Log into your return
2. select Pick Up Where I Left Off
3. In the top right corner, locate the Magnifying glass/search
4. Enter the exact words foreign tax paid
6. Select the first entry Jump to foreign tax paid
7. Tell us about your foreign taxes, select None of these apply
8. Foreign taxes, you may want to read the "category of foreign income" box, click CONTINUE.
9. Do you want deduction or credit? Let's pick TAKE A CREDIT, if you are itemizing, you may want to try it both ways.
11. No Other Income or Expenses, choose NO
14. Choose the income type, Income re-sourced by treaty
15. Country Summary, click on Add a Country
16. Select the Country, India
17. Enter description and Amount for each, then Continue
18. Related Expenses, if applicable, enter description, amount, country, and deduction type then Continue
19. Foreign Losses, enter loss as a positive amount, if any, then Continue
20. Foreign Taxes Paid- India, enter the taxes paid into the Foreign Taxes on Other Income box and the date paid box has a default for the last day of the year that you can change.
21. Alternative Minimum Tax - India, if you did not itemize, the program will answer for you. then Continue
Congratulations, you have finished.