After a heady new year celebration, it’s time for US residents to put their nose to the grind and file their taxes. If you are an H1B visa holder, you are also required to follow suit, provided you qualify for the substantial presence test.
The tax filing for Indian H1B visa holders process may get tricky as do not enjoy the same benefits as US residents. Here we give you a lowdown on how to go about filing your federal taxes.
Tax Filing for Indians in the US: Who is an H1B Visa Holder?
An Indian who works in the US as a skilled professional in areas like Information technology (IT), architecture, mathematics, science, medicine, accounts, and finance qualifies for an H1B visa. And their stay is sponsored in the US by their employer for three years minimum.
An Indian skilled professional who has spent a minimum of 31 days in the current year and 183 days in three consecutive years is eligible under the substantial presence test (SPT). Under federal laws, they are a tax resident and are required to file federal taxes with form 1040NR.
SPT is arrived at with this simple calculation:
The total number of days present in the US in the current year + 1/3 of days present in the previous year of filing taxes + 1/6 of the number of days present two years before that.
Before we dive deep into the tax filing process for Indian H1B visa holders, let’s understand the type of taxes. The salary of an H1B visa holder is subject to Federal, state, and local taxes. They have to pay anywhere between 20% to 40% as taxes depending on their income level and deductions. Plus, they also have to pay property tax, sales tax, gas tax, capital gains tax, inheritance tax, etc.
A tax resident is liable to pay the same kind of taxes but does not enjoy certain deductions like permanent and US residents. If you become a US resident, you do get these benefits, but then your worldwide income is also taxed.
Tax Breakup for Indian H1B Visa Holders
Under FICA (Federal Insurance Contributions Act), the tax resident has to pay around 8% of his gross salary. Around 1.45% of this deduction goes for medicare while 6.2% is for social security. An equal amount is contributed by his employer. They enjoy the benefits accrued from these deductions post-retirement.
The H1B visa holder has to pay 0-10% of their salary as state tax depending on the state they live in. For instance, Alaska, Nevada, Wyoming, Washington, Florida, South Dakota do not levy a separate state income tax. And Tennessee and New Hampshire only charge taxes on interests and dividends earned by him. While California asks employers to deduct 7% of the gross salary as state tax.
Moreover, in certain states, the amount deducted as social security is returned to the employee once they leave the country. This depends on the agreement that the state has with the federal government.
The ex-pats from India also have to pay local taxes on their gross income which amounts to around 4%.
Once you have scored positive in the SPT, you require the following documents to file your tax returns:
Photo identity card
Social security number
Wage documents and salary statements from the employer
Investment income statement
Other income statements
Forms W-2 and 1099 series
Receipts to back up deduction claims
Documents related to the name change, dependency, in case of marriage of married individuals.
If you have a dependent, you have to use the 1040 NR form to claim deductions.
Who is a Dependent?
Any person – parents, relative, children – who live with the H1B visa holder is termed as a dependent. They have to apply for an H4 visa and cannot take up employment. But are allowed to study in the US. A spouse with an H4 visa is not counted as a dependent.
This person also has to file taxes which they can either do jointly or together with the ex-pat. If it’s a joint application, then the H1B visa holder gets to enjoy a greater amount of deduction.
Deductions, exemptions, and tax credits
The tax structure is different for single and married individuals in the US. Married people also get to enjoy certain deductions, exemptions, and tax credits which saves them money. They have to provide receipts to avail of these benefits. Now let us look at this one by one.
1) Deductions: The H1B visa holder has to file under Schedule A of form 1040 to claim certain deductions like US residents. They get to avail deductions on state and local taxes, interest on a home mortgage, dental and health expenses, losses on account of theft, casualty, and others. They need to itemize these in the claim form.
2) Exemption: Unlike US residents, the visa holder does not get exemption on dependents. However, they can request certain exemptions for themselves and their spouse if they are filing taxes separately.
3) Additional tax credits: The H1B visa holder gets limited deductions and exemptions but has respite in the form of tax credits. Some of these include child tax credit, dependent credit, adoption tax, education credit, earned income credit, etc.
After filing your taxes you have to wait for six to eight weeks to get your tax refunds. The IRS (Internal Revenue Services) clears the refund within 21 days of accepting the e-file of tax returns.
If you have adhered to the above points, filing your taxes in the US will be a smooth process. Filing taxes can be cumbersome if you are unaware of the US taxation laws. If you are an H1B visa holder working in the US, contact us to help you file your e-tax returns on time. With over 15 years of experience in this field, backed by efficient accountants, we have helped over 2 lac Indians file their taxes to date.
A rampant virus, skeleton staff, ongoing legislative changes, and flailing funding all make for a decidedly bumpy tax season ahead. The Internal Revenue Service (IRS) is battling backlogs with a grossly understaffed team (20,000 fewer employees than in 2010) and the delays and complexities engendered by stimulus check deliveries and advances in Child Tax Credits.
More specifically, the department counsels are looking out for W-2, 1099 forms, and additional letters regarding Child Tax Credits and Economic Impact Paymentsfor those who received benefits last year.
Read on to know more about precisely what you can expect during the upcoming tax season: key dates, important information, and tips to help you prepare better.
Important IRS Dates for 2022 to Keep a Tab On
February 15—deadline for eligible employees to submit W-4 forms (tax exemption) to employers.
April 1—Deadline for Required Minimum Distribution (RMD) payments from retirement accounts for senior citizens who turned 72 in 2021.
April 18—Deadline for tax filing for most Americans.
April 19—Tax filing deadline for taxpayers in Maine and Massachusetts due to Patriots’ Day falls on April 18 in those states.
May 16—Deadline for tax filing submissions for victims of the Colorado wildfires and Midwest Tornados.
June 15—Tax filing deadline for those applying for extensions, military members, and Americans living overseas.
October 17—Deadline for taxpayers who requested an extension for tax filing submissions.
December 31—RMD contribution deadlines for those 73 and older.
Typically, the deadline to file and pay taxes is April 15; however, the dates have been adjusted due to the public holidays. With Emancipation Day falling on the 15th, the deadline has been extended to April 18. A similar occurrence is visible in Maine and Massachusetts due to Patriots’ Day on April 18.
Things to Keep in Mind While Filing Tax in 2022
As you prepare to file taxes for 2022, we recommend keeping the following in mind:
On a grassroots level, individuals may owe more to the government and receive less if they did not opt-out of Child Tax Credits or didn’t include any student loan deductions. Therefore, taxpayers have been advised to brace themselves given the fluid situation.
Child Tax Credits
As discussed above, Child Tax Credits could impact your tax outlook for the year, given that Congress not only inflated the credits but also began to pay out half of the credit value in advance.
This was done through monthly installments to help struggling families quickly. Additionally, the CTC was refundable (there was no minimum income required to claim it) but fluctuated according to income levels.
Ideally, taxpayers who received the installments would receive the remaining half of the credits as a part of their tax refund, but reconciling exactly how much was paid can complicate matters.
Some may have received more than they were eligible for, and others less. For this reason, it is imperative to safeguard Letter 6419 sent to all payment receivers so that it may be verified in your tax return.
Economic Impact Payments
Stimulus checks of 1400 USD were issued to eligible receivers from March 2021 as a part of the Economic Impact Payments scheme. If you received the entirety of the payment, you need not include any information while filing your taxes.
However, those missing some payments could be eligible to claim the Recovery Rebate Credit for the same. The missing amount would be included in tax refunds. You must note, though, Letter 6475 (YourThird Economic Impact Statement) plays a crucial role in determining whether this applies to you. Much like Letter 6419, it must be given equal importance as W-2 and 1099 forms.
Extending Your Submission Deadline
While it is never advised to miss tax deadlines, those who require more time can qualify for an immediate extension by filling and submitting Form 4868.
This grants a 4-month extension, usually till October 15. However, with it being a Saturday, the final deadline is October 17. The IRS stresses that this extension is only for submitting tax returns and does not apply to payments.
If an individual owes taxes, the deadline remains April 15. Failing to pay on time results in penalty fees. Taxpayers can incur hefty charges: 5% of the amount due each month, a monthly penalty of 0.5% of the unpaid amount, 3% in accrued interest, and a maximum of 25% of what is owed.
When Can you Expect your Refund?
The IRS urges taxpayers to check thoroughly for document and numerical accuracy and to file their taxes as soon as their documentation is ready.
The agency advises filing online and opting for a direct deposit to make the process as seamless as possible for a quick return. Taxpayers who choose direct deposits could see their accounts credited within 21 days of submission by approximately mid-February.
However, refunds involving often misused credits such as the Earned Income Tax Credit (EITC) or the Additional Child Tax Credit (CTC) will take longer due to more stringent verification processes.
Resting your laurels will not quicken or ease the process; hence compiling documents and visiting a tax planner should be top of your priority list. A non-exhaustive list of documents required are listed below:
W-2 form from your employer.
1099 form for income earned from investments.
Mortgage payment proofs.
Letter 6149 for Child Tax Credits.
Letter 6475 for Economic Impact Payments.
Receipts and bank statements for deductible expenses.
Proofs of taxable transactions and investments for things such as cryptocurrency and Non-Fungible Tokens (NFTs).
As an Indian in unfamiliar territory, preparing to file your taxes can be a daunting task. AOTAX has been helping Indian professionals in the US with their tax requirements for almost two decades and provides hassle-free consultancy, planning, and filing services. So, sign up for free today and let us help you with financial peace of mind.
Living in the US with a working visa comes with its share of challenges, and navigating the legal terrain can be difficult, especially when it comes to something as complex as filing your taxes. For all money earned in the United States, H1-B visa holders are subject to US income tax legislation. But things start to get critical when filing for tax deductions.
So we’ve created a comprehensive guide to tax filing for Indian H1B visa holders. Read on to learn more about the process and get through it painlessly.
Frequently Asked Questions about Tax Filing for Indian H1B Visa Holders in the US
Below are some of the most widely asked questions about tax filing for Indian H1B Visa holders in the US:
Who does this taxation apply to?
You’re a highly-skilled professional from a STEM background and fall under the category of ’alien’. You hold an H1B Visa, have permission to work in America for the next three years, and have an employer sponsoring you. Ahoy! You are now subject to paying taxes on your income at the same rate as any other US citizen or resident.
However, it’s not quite so simple. To be considered a US resident for tax purposes, the Internal Revenue Service (IRS) relies on the additional criteria of physical presence in the country to determine whether a migrant in the workforce is liable to file taxes. What is known as the Substantial Presence Test (SPT) is used to determine eligibility and comes into effect on a calendar-year-by-calendar-year basis.
To pass the test, an individual must have been present in the US for at least:
31 days of the current calendar year and,
183 days over the current year and the two years preceding it. More specifically, this count must include all days in the current year, one-third of the days present in the year before the current year, and one-sixth of the days present two years before the current year.
To illustrate, let’s look at the hypothetical example of Suresh, a software engineer who moved to the US in the year 2019.
Suresh has been physically present in the US for 180 days during the 2019-2021 period and would need to count 180 days for the current year (say, 2021), 60 days for 2020 (⅓), and 30 days for 2019 (⅙). Totaling up, Suresh has 270 days of physical presence in the US, which is more than the minimum required to qualify as a resident for tax purposes.
Of course, there are specific guidelines regarding what counts as a day of presence. You can read more about this on the official IRS website.
How much will I be taxed, and which taxes would I have to pay?
H1B taxpayers can expect to lose anywhere from 20% to 40% of their incomes to federal, state, and local taxes, but this depends on income levels and appropriate deductions. These taxes include:
Federal Income Tax
The taxes charged on your US income as a nonresident H1B holder depend on marginal brackets that vary as per your income. Although tax values are the same as those for US citizens and residents, H1B nonresidents will not qualify for the deductibles available to citizens. You can find out more about an estimate of your tax bracket here.
Medicare and Social Security (FICA)
Roughly 8% of your income will be deducted and paid towards your Medicare (1.45%) and Social Security (6.2%), each of which will be matched by your employer. In addition, employers are liable to pay the same amount on your behalf to the IRS, which secures provisions for pension funds, among others.
State Income Tax
Depending upon the state you live in, the tax you pay could range from 0% to 10% of your income. Some states such as Washington, Texas, and Nevada levy no additional charges, while states like California mandate employers to withhold roughly 7% of employee incomes for taxes.
Local Income Tax
Similar to State Income Taxes, towns and cities may levy additional taxes, and employerscould deduct up to 4% of your income for the same.
Am I eligible for any tax benefits?
H1B Visa holders cannot claim the same tax benefits, credits, and exemptions as permanent residents and citizens.
Preparing the required documentation can be a daunting task, but the general rule of thumb stipulates keeping the following handy:
Social Security number.
Valid wage documents and earning statements from all employers in the last financial year (form W-2, W-2G, 1099-R,1099-Misc).
Receipts for relevant deductions.
Documents related to name changes, dependency, and relocation due to marriage for married individuals.Tax Filing for Indian H1B Visa Holders in 2022 – Next Steps and the Road Ahead
Tax Filing for Indian H1B Visa Holders in 2022 – Next Steps and the Road Ahead
Tax season is approaching, and filing doesn’t happen overnight. How should you prepare?
Step 1: Check your eligibility
Take the SPT, and make sure you meet the requirements for days present in the country.
Step 2: Get organized
Gathering documents and getting them in order takes longer than you think it would. So to make tax filing as seamless a process as possible, make sure you have everything ready to avoid last-minute scrambling. This, of course, means being aware of deadlines and being prepared well in advance.
Step 3: Find professionals who can help you
Taxes are confusing at their best and daunting at their worst – especially for Desis in a foreign land. Getting the best returns possible requires the technical know-how of qualified professionals. And at AOTAX, we’ve been helping our fellow Indians file their taxes in the US for over a decade.
Tax planning advisory, return, and preparation services. We also help with extension filing and ITIN and FBAR FATCA processing.
Easy access to an online portal, and free sign-up for new customers.
All about the New Coronavirus relief package and a second stimulus check for the NRIs in the US
On 27th December 2020, the US Government had signed the Coronavirus Response and Relief Supplemental Appropriations Act of 2021 into law. According to this law, a relief package of $900 billion would be delivered to the Americans as a second round of economic stimulus due to the pandemic COVID-19. This bill would help in providing relief to the Americans through the various provisions which have already been put in place by the CARES Act.
Let us have a look at what this new Coronavirus relief package would include.
Another wave of Stimulus payments for the Americans has begun. This Stimulus payment would be up to $600 for the eligible taxpayers, $1200 for those taxpayers who are filing their tax returns jointly, and also an additional amount of $600 for a dependent child who is below the age of 17 years. So, if there is a family with two children then they would receive a Stimulus payment of approximately $2400.
The NRIs in the US do not have to do anything special for being eligible to receive the Stimulus payment. The Stimulus payment would be done by the IRS by using the latest information which is present on the tax returns of the year 2019.
Who would be eligible to receive the Second Stimulus payment?
If you are filing your tax returns as a Single and having an AGI (Adjusted Gross Income) of up to $75,000 or if you are married and are filing your tax returns jointly with an AGI of up to $150,000 then you would be eligible for receiving the Stimulus Check.
For those NRIs who are filing their tax returns as single and have no qualifying dependents, the Stimulus Check payment would phase out at $87,000 and for married couples filing their tax returns jointly without any dependents the payment would phase out at $174,000.
There are possibilities of more households being eligible for obtaining the Second Stimulus payment as this bill would expand stimulus payment for those households which have a mixed-status i.e. different categories of immigration and citizenship statuses as well.
Also, those NRIs who were receiving Railroad Retirement, Social Security Retirement, or SSI income would receive the Stimulus payment without filing a tax return.
By when would you receive your Second Stimulus payment?
If you have not received your Second Stimulus payment yet, then you would be receiving it very soon. There have been some errors by the IRS due to which lots of Stimulus payments have been done to wrong accounts. However, according to the IRS updates the payment for those affected by this error has been done by 8th January and many Americans must have received them too by now.
There has been an increase in the unemployment payments and this would be $300 each week now. These benefits would be extended until 14th March 2021 now. According to this new bill, there has also been an extension to the Pandemic Unemployment Assistance (PUA). This implies that the freelancers and self-employed NRIs in the US can continue to obtain Unemployment benefits.
Moreover, some NRI workers earn a minimum amount of $5,000 in a year but are not able to avail the benefits of the Pandemic Unemployment Assistance as they have an employer. But, now with this New Coronavirus relief package, these workers can even avail the benefit of receiving $100 extra in a week as Unemployment benefits.
The EITC and CTC
The New Coronavirus relief package would help the Americans having low income in using their income from the year 2019 for determination of their EITC (Earned Income Tax Credit) and even that part of the Child Tax Credit (CTC) which is refundable.
Expansion of the PPP
Under the New Coronavirus relief package, the NRIs can also receive a second round of payments under the PPP (Paycheck Protection Program). Due to the expansion in the Paycheck Protection Program; there has been an expansion in the category of business expenses which can be forgiven under those loans that have been taken for meeting the supplier costs.
Contractor Paid Leave
Those contractors who have not been able to work for a temporary period due to the restrictions like the closure of facilities would receive reimbursement for their paid leaves taken.
Eviction Moratorium and Rent Assistance
Furthermore, the New Coronavirus relief package provides an extension for the moratorium on evictions until 31st January 2021. Those families which are not able to pay their past rent or have problems related to future rent payments would be receiving financial assistance.
Extenders related to tax
Tax extenders would be providing tax relief to individuals as well as NRI families with the help of mortgage relief, relief on medical and education expenses as well.
So, the New Coronavirus relief package and the second stimulus payment would help in providing some amount of financial assistance to the Americans during these difficult times thus, reducing the financial stress.
The Earned Income Tax Credit (EITC) is helpful in obtaining a tax break for those individuals and families who have low-to-moderate income categories. In case, you are eligible to claim this credit you would be able to reduce your taxes and increase your tax refund. The refund you would obtain would be the amount of your credit if the EITC credit is more than the amount of taxes you owe.
According to the IRS report, around 25 million taxpayers from the US have received EITC last year and the average EITC received was approximately $2,461. However, millions of Americans are still unaware of the advantages that can be availed by the Earned Income Tax Credit. There are a lot of Americans who miss out on the EITC as they are qualified for claiming the credit newly or they do not file the tax returns as their income falls below the filing limit of the IRS.
Eligibility to claim the Earned Income Tax Credit
You would be eligible to claim the EITC in case you can meet the income limits that are mentioned below.
You must be a US citizen.
You are above the age of 25 years or you are having qualifying children.
You are not filing your tax returns under the status “Married filing separately”.
You are obtaining your Earned income from employment and the unemployment income does not count.
You would be qualifying for EITC if you are obtaining your income from any home business or you provide services.
Income limits to be eligible for claiming EITC
The income limits are adjusted every year and for every year the earned income and AGI (Adjusted Gross Income) must not be more than the below-mentioned figures.
$50,594 for those filing tax returns as single with three or more qualifying children or $56,844 for those married and filing tax returns jointly with three or more qualifying children.
$47,440 for those who are filing their tax returns as single with two qualifying children or $53,330 for those who are married and filing tax returns jointly with two qualifying children.
$41,756 for those filing tax returns as single and having one qualifying child and $47,646 for those who are married filing their tax returns jointly and having one qualifying child.
$15,820 for those filing tax returns as single and having no qualifying children and $21,710 for those who are married filing their tax returns jointly and having no qualifying child.
What is the amount of credit?
The actual amount of credit you can claim would depend on your income and the number of your qualifying children. The maximum credits that can be obtained for the tax year 2020 are mentioned below:-
$6,660 for those who are having three or more than three qualifying children
$5,920 for those who are having two qualifying children
$3,584 for those taxpayers having one qualifying child
$538 for those taxpayers who have no qualifying children
What do you mean by a qualifying child?
For a child to be qualifying for the EITC, there are some tests which the child must meet.
Age – The child must be below the age of 19 years or the age of 24 years if he is a full-time student or he can be of any age if he is permanently disabled.
Residency – You and your child should have lived in the US together for at least a period of more than half a year.
Relationship – Your qualifying child can be your son, daughter, stepchild, foster child, or your brother, sister, half brother or sister, or step brother/sister.
Joint Return – Your child would not be a qualifying child for claiming the EITC if he has filed a joint return.
Hence, EITC (Earned Income Tax Credit) is one of the best credits which can be of great advantage for those Americans who are struggling with their finances. Qualified tax software must be used by the Americans to maximize their EITC. However, it is advisable not to commit any fraud to obtain the credit as it can lead to being penalized by the IRS.
Tax Deductions for single NR Indian Women in the US
The tax season has arrived and it’s the perfect time for your finances to boost up. This is the perfect time for claiming your tax deductions and receiving maximum tax refunds. If you are a single NRI woman residing in the US then you have a lot of opportunities to knock your taxes right now.
A win-win with your taxes
As a single NRI woman in the US, you will not have to wait for the arrival of your various financial documents such as both the sets of Form W-2, Form 1099s, and some other financial documents, unlike the couples. Since there is less paperwork involved and less information to be collected, you can start filing your tax returns immediately and thus; obtain your tax refunds soon.
For maximizing your tax refunds, there are a few ways by which you can get the best tax refunds this tax season.
Your correct tax filing status
One of the most important steps you can take while filing your Federal taxes is to ensure that you are filing your tax returns by using the correct filing status.
According to the IRS, there are five major categories under which you can file your tax returns i.e. Single, Married but filing tax returns separately, Married but filing tax returns jointly, head of a household, and a qualifying widower who has a dependent child.
Your taxes, tax credits, deductions, standard deductions, etc. would be mainly based on your tax filing status.
If you are filing your tax returns with the Single status, then the current Standard Deduction that can be claimed is $12,400.
If you are filing your tax returns as the “Head of the Household” status, then you can claim a bigger Standard Deduction of $18,650. However, this can be feasible if you have the status of both Single and also supporting a dependent.
The 401(k) plan and the IRAs
After your filing status, the next thing which you need to consider is the 401(k) plan. This can be an excellent way for you to obtain some tax benefits.
In case contributions are being made to your 401(k) plan, and then it is one of the best things which you have done. By this, the contributions which you are making are pre-tax that would help in lowering your taxable income. Moreover, by these contributions to the 401(k) plan your investments would easily become tax-free.
Furthermore, you can also make contributions into your 2019 IRA up to an amount of $6,000 and $7,000 if you are 50 years or more. By this, you would get a good tax deduction on your taxes for 2020.
Family and Dependent credits
If you are a single parent and you are meeting the income limits then the EITC (Earned Income Tax credit) would be a great benefit.
This credit can help in lowering the taxes which you owe for payment and you can also qualify for obtaining a refund. In case, you are a single mother having 3 kids or more than 3 kids then you can obtain a credit of up to $6,660.
In general, the biggest expense associated with children is the daycare expenses. Those expenses can be easily offset by using the Child and Dependent Care Credit.
The Child and Dependent Care Credit can vary up to 35% of your expenses up to $3000 for one child i.e. $1050 and 35% of your expenses up to $6000 i.e. $2100 for two children.
In case, you are having a qualifying child who is below the age of 17 years then you would be able to claim Child Tax Credit i.e. $2000.
By the deductions, you are lowering the taxable income you have whereas with tax credits you are decreasing the taxes you owe.
So, if you are a Single NRI woman in the US then these tax deductions and credits can help reduce your taxes and increase your refunds.