Double reporting of RSU income on both W2 and T4

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OttawaSenators
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Double reporting of RSU income on both W2 and T4

Post by OttawaSenators »

I am a Canadian citizen and a US GC holder. In 2020, my US employer had to put me on their Canadian payroll for a short while until I returned to the US.

Now time has come to file taxes. My accountant wants to file the Canadian one as non-resident. I have noticed that my RSU income has been reported on both W2 and T4, and there were of course tax withholdings for both countries. Basically there is an overlapping portion between W2 and T4. Now here is the problem with the way my accountant is filing the US return:

The same RSU income is reported twice on the US return, once in the W2 section and once again in the "foreign income" section (extracted from T4). This is resulting in me owing tons of money to IRS even after applying foreign tax credit.

How to go about this? Should I get another CPA? I have found on TurboTax's help site that there is a section after you enter W2 that asks you if any portion of your W2 has foreign income in it. I am assuming TurboTax will exclude this portion as it will be reported in the foreign income section. I have told the accountant about this and he says this will subject me to an audit!!
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nelsona
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Re: Double reporting of RSU income on both W2 and T4

Post by nelsona »

The RSU income has to all be reported in US, since you file a 1040. Your solution of reporting the "doubled" RSU income won't necessarily work, since that will still be included twice in income. It will not exclude the foreign income, it will merely allow you to put it on the 1116.

You probably need a "corrected" W-2, to remove the extra income.

The T4 appears to be correct, so your CDn filing should be simple, as a non-resident, using the forms for the province in which you worked.
I am taking my usual break from this site until May. Always too many tax-form specific questions at this time of year...
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OttawaSenators
Posts: 54
Joined: Wed Dec 24, 2008 12:42 pm
Location: Arizona

Re: Double reporting of RSU income on both W2 and T4

Post by OttawaSenators »

I have opened a ticket with our payroll regarding this. However I highly doubt they'll issue a corrected W2 to exclude this RSU income simply because there were also US tax withholdings on it too. And the RSU stocks that were sold to cover US and Canadian taxes were also reported in brokerage's 1099.

Speaking of 1116, so wouldn't increasing my foreign tax credit by this "double reported RSU amount" alleviate my US taxes? In other words, instead of decreasing my W2, the accountant should increase my foreign tax credit. Isn't that what TurboTax does when you claim a portion of your W2 to be foreign income by adding that portion to 1116?
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OttawaSenators
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Re: Double reporting of RSU income on both W2 and T4

Post by OttawaSenators »

Nelsona, I think by adding it to 1116 you mean adding it to line 1 of 1116 which is the gross foreign income. In that case, it is of no use as you've mentioned.

Here's what I've found on TurboTax's site:

https://ttlc.intuit.com/community/taxes ... light/true

One person said:

"You will need to enter your W-2 as you normally would.

Then you need to enter foreign earned income into the Search box at the top of the screen and click on Jump to

Start to go through the foreign earned income exclusion screens. Check yes that you entered your W-2

Then you arrive at the screen, Confirm your Foreign Wages Already Entered and you will see your total W-2 wages. You need to allocate your wages to determine what was earned overseas and what was earned in the US. A bonus related only to your foreign assignment would be considered 100% foreign. (Wages are sourced by workdays. If you had 240 workdays during the year and 80 were spent working overseas then you would allocate your wages as 80/240 to determine your foreign wages).Then enter a wage adjustment in the box so that the total will be your foreign wages.

On the screen Would You Like to Try and Exclude Your Foreign Earned Income? You need to answer Yes or your foreign information will be deleted.

Continue to go through the screens and it will tell you you do not qualify for the foreign earned income exclusion. However if you paid foreign tax you may be eligible for the foreign tax credit. "
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nelsona
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Re: Double reporting of RSU income on both W2 and T4

Post by nelsona »

Work done in foreign countries, even if reported on a W-2 is considered foreign sourced. It is reported on the wage line on 1040, and on 1116.

Really, when you thinhg of it, you have 4 pots of income: your US wages (on W-2), your US RSU (On W-2), your CDn RSU (on W-2 and T4), and your Cdn wages (on T4). ALL have to go on 1040. So just dont; include the RSU reported on your T4 on your 1040.
I am taking my usual break from this site until May. Always too many tax-form specific questions at this time of year...
nelsona non grata. Non pro. Search previous posts. Happy Browsing :D
OttawaSenators
Posts: 54
Joined: Wed Dec 24, 2008 12:42 pm
Location: Arizona

Re: Double reporting of RSU income on both W2 and T4

Post by OttawaSenators »

I wish it was as simple as not including my T4 RSU on 1040. Unfortunately that is already included in Box 1 of my W2.

I've found more on Intuit's website. The number of days in the foreign country also matters. It looks like my accountant needs to do some more work than just entering the numbers into his software tax app.

https://ttlc.intuit.com/community/tax-c ... light/true

"You would need to know the amount of RSU included in your W-2 wages. After determining this amount, you will need to allocate the income by between foreign and US workdays between grant and vest. If 50% of your workdays during this time were in a foreign country, then 50% of your RSU income would be foreign source. US source income cannot be offset by foreign tax credits.

You would enter you W-2 as you normally would in TurboTax. Then you would go to Miscellaneous income to enter the amount of foreign source RSU income as a negative number on line 21, page 1 of your 1040.

Please follow the instructions below to report your foreign RSU income as a negative on line 21:

Click Federal Taxes -> Wages & Income and scroll down to Less Common Income
Go to the last selection, Miscellaneous Income and click Start
Go to the last option, Other reportable income and click Start
When it asks, "Any other reportable income?" say yes and then type in a description and the amount to report it on your tax return (make sure this is a negative number)
The you need to go to the foreign tax credit section of TurboTax to enter the foreign income (amount that you entered as a negative on line 21) so that you may take credit for the foreign taxes you already paid.

To include the amount of foreign taxes you paid, follow these steps for TTPremier:



Open up your tax return in TurboTax
Select Federal Taxes
Select Deductions and Credits
Scroll down to the section "Estimates and Other Taxes Paid"
Select Foreign Taxes
Follow through this section to enter the foreign taxes paid"
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OttawaSenators
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Re: Double reporting of RSU income on both W2 and T4

Post by OttawaSenators »

nelsona wrote:

> Really, when you thinhg of it, you have 4 pots of income: your US wages (on
> W-2), your US RSU (On W-2), your CDn RSU (on W-2 and T4), and your Cdn
> wages (on T4). ALL have to go on 1040. So just dont; include the RSU
> reported on your T4 on your 1040.

Oh I got you! Oh yeah, that is the first thing that came to my mind too when I told the stupid accountant to exclude the RSU portion of T4 when entering "foreign income". He said I would get audited for sure!!!
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OttawaSenators
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Re: Double reporting of RSU income on both W2 and T4

Post by OttawaSenators »

I wonder how come on one on this forum has run into this. I am quite sure some people here have been sent to foreign assignments outside the US in addition to people being transferred internally from one country to another.
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nelsona
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Re: Double reporting of RSU income on both W2 and T4

Post by nelsona »

So what if you get audited. Are you going to overpay your taxes just to avoid being audited.
I am taking my usual break from this site until May. Always too many tax-form specific questions at this time of year...
nelsona non grata. Non pro. Search previous posts. Happy Browsing :D
nelsona
Posts: 16947
Joined: Wed Oct 27, 2004 2:33 pm
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Re: Double reporting of RSU income on both W2 and T4

Post by nelsona »

The RSUs are bong correctly divided, and your Cdn-side is correct. The only issue is the extra reporting on your W-2, which should be fixed.
I am taking my usual break from this site until May. Always too many tax-form specific questions at this time of year...
nelsona non grata. Non pro. Search previous posts. Happy Browsing :D
OttawaSenators
Posts: 54
Joined: Wed Dec 24, 2008 12:42 pm
Location: Arizona

Re: Double reporting of RSU income on both W2 and T4

Post by OttawaSenators »

nelsona wrote:
> So what if you get audited. Are you going to overpay your taxes just to
> avoid being audited.
Exactly. I don't know why he is scaring me of an audit. We've got the documentation (Employee Stock Plan Release Confirmation) from the employer's brokerage (ETrade) that clearly shows that the same RSU was taxed for both IRS and CRA. The document is pretty detailed and it even has how many shares were sold to withhold both IRS and CRA taxes.
In last CPA's email, he's becoming more willing to knock the RSU portion off the "foreign income" on the US tax return. This is the easiest way to get this fixed.
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OttawaSenators
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Joined: Wed Dec 24, 2008 12:42 pm
Location: Arizona

Re: Double reporting of RSU income on both W2 and T4

Post by OttawaSenators »

Latest update on this: my employer's stock admin has replied that the burden of adjusting the foreign income and/or applying foreign tax credit on the US tax return is upon me and my tax accountant. They are not going to issue a corrected W2, and their policy is to report the RSU income on both W2 and T4 even though it can cause double taxation and double reporting.

I forwarded the email to my tax accountant and he is now willing to remove the RSU income portion from the "foreign income" section. This makes me wonder if I hired the right accountant for this. Apparently he has never faced this issue before. I don't want to pay another CPA. But maybe I should just to double check his work...

If I ever get audited by IRS, I will update this thread to share my experience with other members of this forum.
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