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Topic: How is foreign *unearned* income taxed?  (Read 1353 times)

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How is foreign *unearned* income taxed?
« on: April 30, 2006, 06:36:32 PM »
I know that I can use the foreign earned income exclusion so that I don't get taxed twice on my UK salary, but what happens with items that the IRS classifies as unearned income, such as dividends, interest and pensions?

I already have a pension with my UK employer.  They also offer stock options, but I don't know if it is worth it to join if I will have to pay US taxes on the dividends.


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Re: How is foreign *unearned* income taxed?
« Reply #1 on: April 30, 2006, 08:48:42 PM »
The dividens from a foreign stock option plan are taxed as compensation until the options are vested.  Once you have exercised (and if you have kept the stock, as against selling it) then the dividends are taxed as dividend income and sourced foreign on form 1116.  Typically they have to get entered on a (separate) passive basket form 1116.


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