H1-B income tax: Here’s how to file your taxes and what documents are required

The H1-B status allows a qualified non-immigrant alien, or an alien who does not hold a lawful residency permit (often referred to as a “green card holder”), to work in the United States as a specialist occupation worker.

To avoid fines, don’t forget to file your taxes before the IRS deadline, which is typically April 15.(Unsplash)

The tax residency regulations define residency for tax purposes in a way that differs significantly from US immigration law, despite being based on the immigration laws pertaining to immigrant and non-immigrant aliens.

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Aliens can be classified as either resident or non-resident for taxation purposes.

Non-resident aliens are only subject to taxation on income that is generated within the United States and/or income that is directly related to a US trade or business, while resident aliens are taxed on their worldwide income in the same way as US citizens (with a few carefully defined exceptions).

Also Read: US hits H1B visa limit for 2024, here’s what’s next for businesses and foreign workers

What are the key visa categories within H-1B?

H-1B visas are meant for individuals with specialised knowledge in a particular professional or academic subject who possess a bachelor’s degree or higher and the corresponding amount of work experience. There is a three-year residency cap on these visas.

Eligibility:

H-1B: Specialty occupation workers.

H-1B1: Free Trade Agreement workers from Chile and Singapore.

H-1B2: Workers in projects related to the Department of Defence.

H-1B3: Fashion models of distinguished merit and ability.

Other Categories: These include H-2A and H-2B for agricultural and non-agricultural workers, H-3 for trainees, and various others for people with exceptional skills or accomplishments in their industries.

Resident and non-resident aliens: How are they taxed?

Resident aliens: They are taxed on their global income, just likely US citizens.

Non-resident aliens: They are taxed only on their income obtained from sources within the US and/or connected with a United States trade or business.

Also Read: What is National Security Agreement? US Senate unveils deal providing major relief to H1B and H4 visa holders

What is substantial presence test?

For federal income tax purposes, an alien in H-1B status—referred to as a “H-1B alien”—will often be considered a resident of the United States provided they satisfy the Substantial Presence Test. The test is administered from January 1 to December 31 of each calendar year. An H-1B immigrant may have the option to be treated as a resident of the United States for the duration of the tax year in certain situations if they do not pass the Substantial Presence Test.

H-1B visa category has distinct tax implications

Tax ramifications vary according to H-1B visa category. While Optional Practical Training (OPT) participants only have to pay federal, state, and local taxes, H-1B workers are also subject to Federal Insurance Contributions Act (FICA) taxes, including social security and Medicare taxes.

This disparity majorly impacts the overall tax burden for H-1B visa holders.

What documents are required to file H-1B taxes?

Form 1040-NR must be filed by H-1B visa holders who are categorised as non-resident aliens on the last day of the tax year in order to disclose income, while resident aliens must submit Form 1040. If they have paid foreign income tax on income from foreign sources, they might also qualify for foreign tax credits.

Before filing, holders of H-1B visas should collect all required tax documentation, such as their Form W-2, social security card, investment income statements, any forms from the 1099 series, and other pertinent income data.

Here are the steps one must follow to file H-1B taxes

Check your tax residency status: To find out if you are a resident or non-resident alien for tax reasons, use the Substantial Presence Test. This will have an impact on your tax situation and the forms you must file.

Keep all docs handy: Gather all required paperwork, including investment income statements, W-2 and 1099 forms, your Social Security card, and other pertinent income data.

Select the correct tax form: Non-resident & resident aliens have to file correct tax form as mentioned above.

Apply for deductions and credits: While resident alien might be eligible for certain deductions and credits, non-residents have limited choice in this regard.

Treaty advantages: If applicable, use Form 8833 to claim treaty advantages, which you should declare on your tax return.

File your tax return: You have two options for filing your taxes: you can do it on your own or use a tax preparation service like Sprintax, which focuses on non-resident tax matters.

Dependents and marital status: Recognise how your spouse’s status influences your application, particularly if they are also non-resident aliens. With a few notable exceptions, including citizens of Canada, Mexico, South Korea, and some Indian students or business apprentices, non-residents are normally not allowed to claim dependents.

To avoid fines, don’t forget to file your taxes before the IRS deadline, which is typically April 15. It can be helpful to speak with a tax expert experienced in nonresident tax matters if you have any questions regarding any component of your tax return.