Taxes for those who convert from F-1 to H-1B
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Taxes for those who convert from F-1 to H-1B

This article addresses the tax complications associated with converting from F-1 to H-1B. It is similar to the article about taxes for H-1B holders, but there are significant differences.

You entered the United States as a student on a F-1 visa to pursue a degree at a higher learning institution. You succeeded in getting your degree, and, while working on Optional Practical Training (OPT) assignment, you impressed someone at the company where the OPT was done and they offered to sponsor you for an H-1B employment visa.

As noted above, while you were in school and on OPT, you were on a F-1 visa and were considered a non-resident alien. If you were required to file a tax return, you filed Form 1040NR or 1040NR-EZ. However, now that you converted to H-1B status, you 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.

If you converted to H-1B visa after July 2nd, you 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 converted to H-1B 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 entire year 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.
  • If you file a dual-status return, you must file Form 8843 one last time with the IRS. For every successive year, you will file as a resident alien and Form 8843 is no longer required.

Finally, you should look carefully at your pay stubs while you were on the OPT. It is possible that you were exempt from Social Security and Medicare taxes, but your employer withheld these taxes anyway. By filing Form 843, you can claim a refund of these withheld taxes as long as you file either as a non-resident alien or as a dual-status alien. You should refer to IRS Pub 519, pages 45-47, for details. Please note that if you file as a resident alien, you forfeit the opportunity claim a refund of these withheld Social Security and Medicare taxes.

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 GENERAL QUESTIONS, CONCERNS, ETC. section of the Taxes for H1B Visa holders and other Employment based Visas Section and let's discuss it.