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Tax status of H-1B visa holders
This article addresses the tax status of the holders of the H-1B visa.
The H-1B is an employment visa which is normally issued to individuals who seek temporary entry in a specialty occupation as a professional. It is normally restricted to persons who have a bachelor degree (or the equivalent in work experience). By its very nature, this visa is limited in duration, with an initial period up to three years, with possible annual extensions up to six years total.
The H-1B visa holder who has been in the United States for the entire tax year (in other words, you entered the U.S. on your H-1B visa prior to January 1, 2006) is considered a resident alien and will file Form 1040, 1040A or 1040EZ. You will pay taxes at the state and federal level at the same tax rates as U.S. citizens, and are liable to pay Social Security and Medicare taxes. You can claim all the exemptions and credits which are available to U.S. citizens, to include filing jointly with your spouse (even if he/she is living in another country) and claiming the exemptions for your children (assuming the children lived with you in the U.S. for more than half of the year). To file jointly with your spouse and/or to claim the exemptions for your children, you must either apply for and receive valid Social Security numbers for them or request Individual Tax Identification Numbers by filing a Form W-7 for your spouse and each child when you file your first tax return.
The H-1B visa holder who files as a resident alien also needs to remember that ALL of his/her worldwide income is subject to U.S. taxes, not just U.S.-based income. While these taxes can be offset by the Foreign Tax Credit (for taxes paid to another country) and the Foreign Income Exclusion, the visa holder should not fail to report income from his home country
Those who enter the United States before July 3rd during the tax year will meet the Substantial Presence Test (which requires presence in the U.S, for at least 183 days) and are considered dual-status aliens and must file a dual-status tax return, which, for them, consists of a Form 1040 with a Form 1040NR as an attachment. In most cases, the taxpayer cannot claim the Standard Deduction, cannot file jointly with her/her spouse (though he can claim his spouse and children as dependents), cannot claim the Head of Household filing status, and cannot claim either the Earned Income Credit, the education credits or the credit for the elderly or disabled. As you may have guessed, the dual-status return is somewhat complicated and probably should NOT be filed without professional help.
Those who enter the United States after July 2nd during the tax year cannot meet the Substantial Presence Test and may file as a non-resident alien, but also MAY file a dual-status tax return under the First Year Choice. The First Year Choice option requires that you be in the United States for at least 31 days in a row in 2006 AND be present in the United States for at least 75% of the number of days from the beginning of your 31 consecutive day period and ending with the last day of 2006. You will also have to file a statement with your return concerning the First Year Choice. See IRS Pub 519 for details. You must wait until you meet the Substantial Presence Test for 2007 before you can file, which means you might have to wait until late June of 2007 before you can file, but the benefits of filing dual-status instead of filing as a non-resident alien may be worth it.
Finally, if you are married and your wife is with you on a H-4 visa, you can both choose to be treated as resident aliens, regardless of whether you entered the United States before or after July 3rd. If you arrived before July 3rd, you are already dual-status. If you arrived after July 2nd, you would have to use the First Year Choice option (and file the First Year Choice statement), then meet the requirements for choosing to file as a resident alien as well. These requirements are:
- Be a non-resident alien at the beginning of the year.
- Be a resident alien at the end of the tax year.
- Be married at the end of the year.
- Your spouse must join you in this choice.
The results/consequences of this choice are as follows:
- You and your spouse are treated are treated as U.S. resident for the entireyear for income tax purposes.
- You and your spouse are taxed on all of your world-wide income.
- You and your spouse must file a joint income tax return for 2006.
- Neither you nor your wife can make this choice again in later tax years, even you are divorced, separated or remarried.
I hope you have found this brief article informative. It is the first of many we will post to this forum to serve our guests. If you have any questions, as them in the Strategies for Saving Taxes. section of the Taxes for H1B Visa holders and other Employment based Visas Section and let’s discuss it.