RSU Double-Taxation Issue after Canada-US Transfer: Income Reported Twice on W2 and T4

[xzh391]

I transferred within the same company from Canada to the U.S., and have encountered tax complexities related to RSUs under the U.S.-Canada tax treaty.

What I know:

RSUs involve two key dates: Grant and Release. The grant typically occurs at hiring or salary adjustment, while the release occurs later, often over several installments. If you change countries between these two dates, each released RSU amount is allocated proportionally to the time spent working in each country.

For example:

• Jan 1, 2024: RSUs granted while working in Canada
• Mar 1, 2024: Transferred from Canada to the U.S.
• Apr 1, 2024: RSUs released, valued at $3,000

This would roughly mean $2,000 is Canada-sourced income (2 months) and $1,000 is U.S.-sourced income (1 month), though actual calculations are based on precise days worked.

Taxes are withheld by each country based on where the income is sourced. As both Canada and the U.S. tax residents globally, you must report foreign income to your country of tax residence. In my case, I was a Canadian tax resident and U.S. non-resident for the first half year I transferred. Thus, CRA should withhold tax on the $2,000 Canadian portion, and IRS on the $1,000 U.S. portion. I don't need to report Canadian income to the IRS (as a U.S. non-resident), but I must report the $1,000 U.S. income to the CRA (along with claiming foreign tax credits).

The issue

My company withheld correctly for the $2,000 Canadian portion on my T4 but withheld U.S. taxes on the entire $3,000 on my W2 (not just the $1,000). This resulted in double taxation on the $2,000. Also, the full $3,000 was reported on my U.S. W2, and $2,000 was reported again on my Canadian T4, leading the CRA to incorrectly see my total income as $5,000 instead of the correct $3,000.

The Payroll team insists this is required by the IRS and refuses to amend the W2, nor can they provide any documentation proving this double-counting. Has anyone else experienced this issue or could a tax professional suggest how to handle this situation?

[TurboTaxAniqua]

The RSU income has to all be reported in the 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.

For more clarification, we would suggest contacting CRA directly.

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