[kritvarma]

Hi
I am on H1-B and resident alien. I want to exercise the stock options awarded to me by my company. But before I sell, I have been asked to submit W-9. Am I subject to backup withholding?
I wasn't sure if I could certify W-9 that I am not subject to 28% backup withholding.
Is backup withholding same as tax?

[MukatA]

On your W-9 you will also check 'exempt payee' unless you know that you are already in trouble with the IRS with under paid taxes.
If you check "exempt payee," the payment will not be subject to backup withholding.

[kritvarma]

Thanks. Could you clarify? Are you saying that all resident aliens on H1-B are NOT subject to backup withholding for stocks and shares unless IRS has already informed them that they have underpaid taxes or dividends? Is backup withholding different from state/federal taxes deducted from the sale of shares?

[Five Rings]

If you are resident in America by substantial presence (and it sounds like you are) you fill out the W9 and insert your SS number and check the box for "exempt payee" as MukatA has instructed. You send that form to your broker. NO TAX WILL BE WITHHELD. Of course you must report and pay tax on that gain or any dividends at your marginal rate.

When you return to your own country, and if you maintain a brokerage account in America, and if you sell some stock at a gain, there will be no tax at all on that gain in the US, and tax will be withheld at the treaty specified rate for any dividends you receive (generally 15%).

In that case you will provide your broker with a Form W8-BEN.

[kritvarma]

Thanks MukatA and Five Rings.