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Posted by Larry Israel on April 18, 2008, 7:06 am
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My son, an American citizen, is resident and works overseas. In an employee
stock purchase plan he bought shares in the company's American affiliate.
Somehow the fact that he is an "American Person" did not get through, and
instead of a Form 1099 he got a Form 1042. We are talking about $8 in income
and $2 in taxes withheld.
Should he just file his US tax as if the 1042 were a 1099, but that there
were US taxes withheld. Or should he also include the 1042 with his return
as if it were a W2?
He will try to straighten things out for next year, but trying to get a 1099
for this year seems to be a bit of a hassle.
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Posted by removeps-groups@yahoo.com on April 18, 2008, 8:36 pm
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On Apr 18, 4:06 am, VSLA...@weizmann.weizmann.ac.il (Larry Israel)
wrote:
> My son, an American citizen, is resident and works overseas. In an employee
> stock purchase plan he bought shares in the company's American affiliate.
> Somehow the fact that he is an "American Person" did not get through, and
> instead of a Form 1099 he got a Form 1042. We are talking about $8 in income
> and $2 in taxes withheld.
Assuming he sold the shares acquired through ESPP as soon as he
receicved them: In this case, the discount (difference between market
price and discount price) is income and for a US employee is reported
on W2. You also report the sale on Schedule D, but the cost basis and
proceeds are almost the same so the short term gain is almost zero.
To be exact, the proceeds will be the sale price of all the shares
minus commissions and SEC fees, so the net loss on Schedule D would be
something like $20 (but only in the case where you sell the shares as
soon as they are vested).
> Should he just file his US tax as if the 1042 were a 1099, but that there
> were US taxes withheld. Or should he also include the 1042 with his return
> as if it were a W2?
Suppose the discount income is 10k. Does the 1042 show the discount
income as 10k and the tax withheld as 2k? If yes, then it has the
same information that a US employee W2 would have, so I suspect it
would be OK to use it. Attach it to your return (as if it were a W2),
and perhaps attach a statement to your return that you're making a
good faith attempt -- trying to get them to issue a W2 but doesn't
seem like they can do it in time, so you're attaching the 1042 as if
it were a W2, and if they do manage to issue a W2 you will file an
amended return with no changes but just to send the W2, and are trying
to sort things out for next year.
How is his income from the employer reported? I suspect it is not on
a W2. He does have to report this income, and in fact his entire
worldwide income, on his 1040 but gets a foreign earned income credit
of about 95k, as well as a credit for foreign tax paid on 1116, so
there's a good chance he'll owe nothing to the US.
BTW, are you talking about 1042 or 1042S? What does the form look
like?
http://www.irs.gov/pub/irs-pdf/f1042.pdf
http://www.irs.gov/pub/irs-pdf/f1042s.pdf
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<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
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<< Copyright (2007) - All rights reserved. >>
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Posted by Larry Israel on April 20, 2008, 3:08 pm
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>Assuming he sold the shares acquired through ESPP as soon as he
>receicved them: In this case, the discount (difference between market
>price and discount price) is income and for a US employee is reported
>on W2. You also report the sale on Schedule D, but the cost basis and
>proceeds are almost the same so the short term gain is almost zero.
>To be exact, the proceeds will be the sale price of all the shares
>minus commissions and SEC fees, so the net loss on Schedule D would be
>something like $20 (but only in the case where you sell the shares as
>soon as they are vested).
>
He sold the shares withing a day or two. The purchase/sale and profit were
reported on his local tax form, but (un)fortunately the dividend date
was while he held the stock, so he made eight whole dollars, with the
IRS deucting two. The form shows only that.
>
>BTW, are you talking about 1042 or 1042S? What does the form look
>like?
>
>http://www.irs.gov/pub/irs-pdf/f1042.pdf
>http://www.irs.gov/pub/irs-pdf/f1042s.pdf
>
The layout of the form is not the same as either. It was sent to him
electronically. As I remember is said 1042 at the top, but I will have
to check.
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
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Posted by removeps-groups@yahoo.com on April 22, 2008, 9:45 pm
Please log in for more thread options On Apr 20, 12:08 pm, VSLA...@weizmann.ac.il (Larry Israel) wrote:
> He sold the shares withing a day or two. The purchase/sale and profit were
> reported on his local tax form, but (un)fortunately the dividend date
> was while he held the stock, so he made eight whole dollars, with the
> IRS deucting two. The form shows only that.
Sorry for delay in replying. I forgot about this thread.
For a US person, no tax is normally withheld on dividends, but they
would have to report it on their tax return and pay taxes. For a non
US person, tax withheld should normally be 30%. It seems you're
saying that the tax withheld is 2/8=25%, which is pretty close to 30%.
If the company mistook him for a non US person, no problem. He
already has $2 in tax paid for him. I would add the tax in line 64 of
form 1040. To recap, the line number descriptions are:
1040
Line 64 = Federal income tax withheld from Forms W-2 and 1099
1040-NR
Line 59 = Federal income tax withheld from Forms W-2, 1099, 1042-S,
etc.
1040 line 64 is similar to 1040-NR line 59. Since your friend is a US
person, he will only file form 1040, and he should include payments on
1042-S on line 64.
It would be a good idea to attach 1042-S with your return (just as if
it were a W-2), perhaps with the letter of explanation as in my
previous post. If the 1042-S does not show his social security
number, then definitely attach the 1042-S.
> >BTW, are you talking about1042or 1042S? What does the form look
> >like?
>
> >http://www.irs.gov/pub/irs-pdf/f1042.pdf
> >http://www.irs.gov/pub/irs-pdf/f1042s.pdf
>
> The layout of the form is not the same as either. It was sent to him
> electronically. As I remember is said1042at the top, but I will have
> to check.
Does it have the same fields as 1042 or 1042s? Does it have his
social security number on it?
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
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