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Taxation of Nonimmigrant Workers in the US

Taxation of Nonimmigrant Workers in the US
Ines Zemelman, EA
14 February 2022

The United States has a complicated non-immigrant tax system that you might need some help to deal with. There are so many visa categories, rules, and regulations that you should follow. Here at Taxes for Expats we are ready to help you to deal with your tax returns.

Temporary worker visas

There are over twenty non-immigrant work visa categories that allow foreigners to work in the United States. 

We’ve listed the most common temporary visa categories that allow nonresident alien individuals to work in the US for a certain period of time. 

  1. H-1B. H-1B nonresident aliens are workers in a specialty:
    1. H-1B1: Free Trade Agreement workers in a specialty occupation from Chile and Singapore;
    2. H-1B2: Specialty occupations related to Department of Defense Cooperative Research and Development projects or Co-production projects;
    3. H-1B3: Fashion models of distinguished merit and ability.
  2. H-2A. Temporary or seasonal agricultural workers;
  3. H-2B. Temporary non-agricultural workers;
  4. H-3. Trainees other than medical or academic; practical training in the education of handicapped children;
  5. L. Intracompany transferees:
    1. L-1A. Applies for managerial or executive positions;
    2. L-1B. Applies for positions utilizing specialized knowledge;
  6. O-1. Individuals with extraordinary ability or achievement (sciences, arts, education, business, or athletics and motion picture or TV production);
  7. P-1. Individual or team athlete, or member of an entertainment group:
    1. P-1A. Internationally recognized athletes;
    2. P-1B. Internationally recognized entertainers or members of internationally recognized entertainment groups.

To see the full list of temporary (nonimmigrant) worker classifications, please visit the U.S. Citizenship and Immigration Services website.

OPT vs H1B tax impacts

When working on an OPT (Optional Practical Training), you only have to pay your Federal State, Country, and City taxes. However, when you start to work on an H1B visa, you will have to pay FICA taxes on top of those taxes, which include your Social Security and Medicare taxes. So when working on an H1B visa, you definitely have to pay more taxes to the IRS then you would be doing an OPT.  Another rule when it comes to taxes and immigrants is that if you have passed a 5-year waiver period while on an F1 visa before starting your OPT, you will be required to pay more taxes. These are some of the main difference between OPT - H1B tax return

Income tax returns for H1B visa holders

If you are a skilled professional living and working in the United States, you should be an H1B visa holder. Depending on your residency status, you may be taxed in a different way. 

What is the tax rate and how much do you have to pay on H1B income tax return?

Your tax rate fully depends on your level of income and the place you live in. On an H1B visa, you have to pay Federal State, Social Security, and Medicare tax based on your income. The federal tax for H1B employees ranges from 10% to 37 %; the higher your income, the higher the tax you have to pay. Usually, H1B workers have to have a certain level of income and therefore pay between 25% and 28% on taxable income. But it may vary based on your taxable income. The exact amount of how much you have to pay can be found on the official website of the IRS. Like in every country, when you work and have a job, you are required to pay taxes.

What do H1B visa holders' taxes include?

US tax for H1B visa holders include Federal income tax, State income tax (depends on the state you live in), Local income tax (depends on the state you live in), and Federal Social security and Medicare tax. There’s also a possibility that you’ll have to pay property, sales, gas, inheritance taxes, and more.

Federal income tax

The United States has a progressive tax system, which means that your tax rate will depend on your income. H1B visa tax withholding rates range from 10% to 37%. Please, see the tax deduction rates for 2021 on the IRS official website.

State income tax

State income tax rate depends on the state. This tax as well as the local income tax will be withheld by the employer. There are states that do not have a personal income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming.

Local income tax

There are cities that have their local income tax. Usually, the employer withholds a certain percentage from your gross income. Please, make sure that your address is correct on the W4 form. Otherwise, you might be paying the wrong local tax.

Federal Social Security and Medicare withholding rates

As for today, the social security tax rate is 6.2% for the employer and 6.2% for the employee. Together they pay 12.4%. 

The Medicare rate is 1.45% for the employer and 1.45% for the employee. In total, they pay 2.9%. 

Filing taxes on H1B

Determine your residency status with the substantial presence test

There are two types of aliens for tax purposes — resident and nonresident aliens. In order to file your taxes, you must determine your residency status with the substantial presence test. The test is applied on a calendar year-by-calendar year basis.H1B tax on resident aliens is in the same way if they were American citizens (including their worldwide income), while H1B nonresident aliens are taxed only on their income earned in the United States. You can find more details at the end of this article.

What documents to file?

H1B visa holders will need a Social Security Card (SSC), Form W2, Form 1099, investment income statement, and more. If you prepare documents as a non-resident alien, make sure that you file forms 1040NR, or 8843. 

How much tax do you have to pay when working on OPT?

As mentioned before, working on an OPT is a lot different than working on an H1B because an OPT is not technically considered a job. An OPT is considered more of an internship and has accompanying lower wages to prove it. Therefore, if you are on an OPT, you will only have to pay Federal and State taxes but you will not have to pay for Social Security or Medicare.

Alien tax status: Resident or Non-resident?

There are two ways to determine if you are a resident or a nonresident alien: the green card test and the substantial presence test for the calendar year. 

If you have a green card it means that you are a resident alien. If you meet the substantial test requirements you are also considered as a resident alien. To do that, you should be present at least 31 days in the US during the current tax year and a total of 183 days during the last three tax years. To find out how to define your status, please, read the article about residential status for income tax.

Ines Zemelman, EA
Founder of TFX