Foreign (US) Shares - Withheld Tax

scooby_doo_2

Hello friendly MSEers!

A few years ago, I was awarded a $10,000 bonus in the form of Restricted Stock Unit (RSUs) by the company I work for. These have now fully vested and have been sold. They are currently held as cash in my company's brokerage account. However, when the shares were sold, they were subject to a 47% (!!!) share withholding tax which were deducted before being converted to cash.

Now, I don't think I've been taxed the correct amount. According to my research, per the US-UK tax treaty, only 15% of the shares should have been withheld for tax purposes.

FYI, I have a current W-8BEN form on record with the brokerage firm and I am a UK resident for tax purposes.

Can anyone advise on the best course of action to reclaim the amount that I think I am rightfully owed (or correct any of my misunderstandings )?

Many thanks! :beer:

EdSwippet

scooby_doo wrote: »

Now, I don't think I've been taxed the correct amount. According to my research, per the US-UK tax treaty, only 15% of the shares should have been withheld for tax purposes ... correct any of my misunderstandings.

The first thing to check is to whom this tax withholding was actually paid. It was probably taken by the US broker, but that doesn't mean it went to the US IRS. (Also, the 15% treaty rate you quote is relevant only to share dividends, which these RSUs are not -- they are actually just salary.)

The usual case with US stock RSUs awarded to UK employees is that the employer gets the US broker to withhold very generously to cover all the employee's UK tax and NI liability -- no US tax withholding or liability -- and then refunds the balance under PAYE a month or two later. Described in this recent thread.

Worst case, you would need to file a US form 1040NR with the IRS to recover any withholding from them. Since you have a W-8BEN on file it really shouldn't come to that though. At least, not unless the US broker has made a huge mistake somewhere along the line by both ignoring the W-8BEN and also paying over the tax withholding to the wrong government...

scooby_doo_2

EdSwippet wrote: »

The first thing to check is to whom this tax withholding was actually paid. It was probably taken by the US broker, but that doesn't mean it went to the US IRS. (Also, the 15% treaty rate you quote is relevant only to share dividends, which these RSUs are not -- they are actually just salary.)

The usual case with US stock RSUs awarded to UK employees is that the employer gets the US broker to withhold very generously to cover all the employee's UK tax and NI liability -- no US tax withholding or liability -- and then refunds the balance under PAYE a month or two later. Described in this recent thread.

Worst case, you would need to file a US form 1040NR with the IRS to recover any withholding from them. Since you have a W-8BEN on file it really shouldn't come to that though. At least, not unless the US broker has made a huge mistake somewhere along the line by both ignoring the W-8BEN and also paying over the tax withholding to the wrong government...

Very useful information, thank you.

How would the PAYE NI and income tax refund work if I left said employer? Would they still inform HMRC?

EdSwippet

scooby_doo wrote: »

How would the PAYE NI and income tax refund work if I left said employer? Would they still inform HMRC?

The answer is almost certainly "as normal". I left my last employer in February 2016 but exercised a few remaining stock options in May. They processed the May options sale through their payroll exactly as usual -- even though they had already issued a P-45 -- and I received(*) a June payslip showing tax and NI withheld, and ending with a modest balancing payment.

(*) Actually it took three months of badgering for them to provide post-departure payslips. Their way of 'making payslips available' is to put them behind a password-protected part of the company's internal intranet. That's no use at all to ex-employees with no intranet access.