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Taxation of Nonimmigrant Workers in the US

Taxation of Nonimmigrant Workers in the US
Ines Zemelman, EA
14 December 2020

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.

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 for an H1B visa holder?

Your tax rate fully depends on your level of income and the place you live in. You can expect your tax rate to be somewhere between 20% and 40%.

What do H1B visa holders taxes include?

H-1B non-immigrant visa holders have to pay 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. Income tax withholding rates range from 10% to 37%. Usually, H1B visa holders pay between 20% and 35%, 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%. 

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, 1040NR-EZ or 8843. 

H1B resident aliens are taxed 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. 

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