Your Obligations for H1B Taxes in the USA

The H1B visa is a common pathway for skilled professionals to enter the U.S. workforce, sponsored by an employer for a role requiring specialized knowledge. Working in the United States under an H1B visa subjects you to U.S. tax laws. Your earnings from a U.S. employer will be taxed at federal, state, and potentially local levels, and the fundamental requirement to pay taxes on your U.S. income is immediate.

Determining Your U.S. Tax Residency Status

Your tax obligations in the U.S. are shaped by your tax residency status, a classification that is entirely separate from your immigration status. For federal tax purposes, an H1B visa holder is classified as either a “nonresident alien” or a “resident alien.” This determination dictates how you are taxed, what income you must report, and which deductions or credits you can claim.

The Internal Revenue Service (IRS) uses the Substantial Presence Test to determine your tax status. To meet this test, you must be physically present in the United States for at least 31 days during the current year, and a weighted total of your days of presence over a three-year period must equal or exceed 183 days. This total is calculated by adding all the days you were present in the current tax year, one-third of the days from the first preceding year, and one-sixth of the days from the second preceding year.

An exception to this test is the “closer connection exception.” This may apply if you are present in the U.S. for fewer than 183 days in the current year, maintain a tax home in a foreign country, and can demonstrate a closer connection to that country. This is claimed by filing Form 8840, Closer Connection Exception Statement for Aliens.

A resident alien is taxed on their worldwide income, meaning income from all sources, both inside and outside the U.S. A nonresident alien is taxed only on income derived from U.S. sources.

Understanding Your Federal Tax Obligations

Your federal tax obligations include federal income tax and social insurance taxes, commonly known as FICA taxes. The rules for each depend on whether you are a resident or nonresident alien. Resident aliens follow tax rules nearly identical to those for U.S. citizens, including a progressive tax system with marginal tax brackets. Nonresident aliens are taxed only on their U.S.-source income, sometimes at different rates.

H1B visa holders are subject to FICA taxes, which fund Social Security and Medicare, from their first day of employment in the United States. This applies regardless of your tax residency status. Your employer will withhold 6.2% of your gross salary for Social Security and 1.45% for Medicare, with the employer contributing an equal amount.

The United States maintains tax treaties with numerous countries to prevent individuals from being taxed on the same income by both their home country and the U.S. These treaties can offer specific benefits, such as reduced tax rates on certain types of income or exemptions for particular earnings. It is advisable to review the specific tax treaty between the U.S. and your country of citizenship to see if any provisions apply to your situation.

State and Local Tax Considerations

Beyond federal obligations, H1B visa holders must also account for state and, in some cases, local income taxes. This is a separate layer of taxation administered independently from the IRS, with rules and rates that differ substantially across the country.

Most states impose an income tax, and the methods for calculating this tax, the tax rates, and the available deductions vary widely. For instance, states like California and New York are known for having relatively high income tax rates. In contrast, a handful of states, including Texas, Florida, and Washington, do not impose any state-level income tax at all. Some cities and counties also levy their own local income taxes.

Filing Your U.S. Tax Return

Filing your annual tax return involves gathering the correct documents and selecting the appropriate forms based on your tax residency status. Proper filing is a yearly requirement to remain compliant with U.S. tax law.

Your employer is required to provide you with Form W-2, which details your total wages and the amount of federal and state taxes withheld throughout the year. If you have other types of income, such as from freelance work or investments, you may receive various Forms 1099.

Choosing the correct tax form is a direct consequence of your residency status. Resident aliens file Form 1040, the standard U.S. Individual Income Tax Return, which is the same form used by U.S. citizens. Nonresident aliens must file Form 1040-NR, U.S. Nonresident Alien Income Tax Return. In the year you transition from a nonresident to a resident, you may need to file a “dual-status” return.

Your filing status, such as Single or Married Filing Jointly, also has specific rules. A nonresident alien cannot choose the Married Filing Jointly status unless their spouse is a U.S. citizen or resident alien and they make a special election to be treated as a resident for tax purposes for the entire year. Resident aliens have the same filing status options as U.S. citizens.

Deductions and credits can reduce your taxable income. Resident aliens can claim the standard deduction, while nonresident aliens are required to itemize their deductions. Resident aliens may also be eligible for various tax credits, such as the Child Tax Credit. To claim dependents, such as a spouse or child on an H4 visa, they must have either a Social Security Number (SSN) or an Individual Taxpayer Identification Number (ITIN), which is obtained by filing Form W-7 with your federal income tax return.

Tax Procedures When Leaving the U.S.

When you permanently depart the United States, there are specific tax procedures to follow to ensure you have met all your income tax obligations for the year of your departure.

A requirement for some departing aliens is obtaining a “Sailing Permit,” also known as a Departure Permit. This certificate of compliance is procured by filing Form 1040-C, U.S. Departing Alien Income Tax Return. The purpose of this form is to calculate and settle any U.S. income tax owed for the portion of the year you were in the country before your departure. Exemptions often apply to diplomats, employees of international organizations, and holders of certain visas, like H-4 dependents, who had no taxable income from U.S. sources.

You should plan to file Form 1040-C with the IRS before you leave, typically within the 30-day period prior to your departure date. Filing Form 1040-C does not absolve you of the need to file a final, annual U.S. tax return. You will still be required to file a regular tax return for that tax year by the standard filing deadline in the following year.