If you’re a U.S. taxpayer with equity compensation from a foreign employer – such as stock options or restricted stock units (RSUs) – understanding your IRS reporting obligations is essential. Many taxpayers are unaware that these assets, even if granted abroad, can trigger U.S. tax and reporting requirements, sometimes even before any income is recognised.

This article breaks down what you need to know about reporting foreign stock options and RSUs to the IRS and how to stay compliant while working abroad.

Equity Compensation Is Still U.S. Taxable

Whether your stock options or RSUs are granted by a U.S. or non-U.S. employer, the IRS considers them part of your worldwide income if you are a U.S. citizen or resident alien. This means the income from these awards – and in many cases, the existence of the awards themselves – must be reported.

NSOs and RSUs: When Are They Taxed?

• Non-qualified Stock Options (NSOs): Taxed when exercised. The spread between the exercise price and the fair market value at the time of exercise is treated as ordinary income.
• RSUs: Taxed when they vest. The fair market value of the shares on the vesting date is treated as ordinary income.

Even if the employer is foreign, the income must be reported on your Form 1040 for the relevant tax year.

Key IRS Reporting Forms

1. Form 1040 – Report the income from RSU vesting or NSO exercise.
2. Form W-2 or Form 1099 – (unlikely) Foreign employers may not issue these, but you’re still responsible for reporting income.
3. Form 8938 (FATCA) – If your foreign financial assets, including vested but unexercised options, exceed certain thresholds, you must report them here.
4. FBAR (FinCEN Form 114) – If your stock options or RSUs are held in a foreign financial account, and the aggregate value of your foreign accounts exceeds $10,000 at any time during the year, FBAR reporting may be required.
5. Form 3520/3520-A – In some cases, if the equity is held through a foreign trust or non-U.S. entity, additional reporting may apply.

Common Pitfalls

• Failing to report equity in foreign accounts – Many forget to disclose brokerage accounts holding foreign equity.
• Underreporting the fair market value – Using grant-date value instead of vesting/exercise-date value can lead to inaccuracies.
• Misunderstanding the reporting threshold – Just because you haven’t received cash doesn’t mean there’s nothing to report.

Example: Daniel’s RSUs in Singapore

Daniel, a U.S. citizen working for a Singapore-based tech company, receives RSUs in 2021. The shares vest in 2023 while he is still living abroad. Although his employer doesn’t provide a U.S. tax form, Daniel must:

• Report the fair market value of the vested shares as income on his 2023 Form 1040
• Include the asset on Form 8938 if thresholds are met
• File an FBAR if the shares are held in a Singapore brokerage account exceeding $10,000

Tips to Stay Compliant

Maintain records of grant, vesting, exercise, and sale dates

Monitor the value of foreign financial accounts throughout the year

Don’t wait for tax forms from foreign employers—you are responsible for accurate reporting

Seek help for interpreting local tax withholding vs. U.S. obligations

Final Thoughts

Reporting foreign stock options and RSUs to the IRS isn’t optional – it’s a requirement that carries steep penalties if overlooked. Whether you’re a U.S. expat or working for a multinational firm, proactive recordkeeping and understanding your tax responsibilities can help you avoid costly surprises.

The information in this blog post is for general informational purposes only and does not constitute professional tax advice. We strongly recommend consulting a qualified tax professional before making any decisions. US Expat Tax Advisor is not liable for any actions taken based on this content.

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