tax filing for indian H1B visa Archives

6 Types of Taxes Every H1-B Visa Holder Pays in the US

by aotax | Apr 23, 2022 | taxes

For an Indian, an H1-B visa is a passport to their great American dream! You gain money, respect, and an international experience on your résumé. You do, however, earn in dollars and pay taxes in dollars.

If you’re unfamiliar with the H1-B holder tax filing process, we’ve put together a step-by-step guide to help you get it right.

What is an H1-B Visa?

An H1B visa is granted to Indians (as a nonimmigrant classification) who work in specialized fields such as medicine, science, mathematics, accounting, and information technology (IT) firms or spaces in the United States.

Furthermore, your American employer who sponsors you covers your three-year stay in the United States under this visa. This means they pay for your visa fees and fill out the form on your behalf.

Substantial Presence Test (SPT)

Passing the SPT is essential for becoming a tax resident in the United States. You must have spent at least 183 days in the United States over the previous three years to pass this test. Under the SPT, even the days for each year are subdivided further.

You should have spent 31 days in the United States during the year in which you do your H1-B visa holder tax return. Then it’s 1/3 of days for the previous year and 1/6 of days for the earlier two years. So the total number of days in the three years should be at least 183.

6 Types of Taxes you Pay During H1-B Holder Tax Filing

According to the US tax code, when you qualify for the SPT for H1B holder tax filing, around 25% to 35% of your income will be taxed. Therefore, you will pay the same taxes as any other US tax resident, but you may not receive the same benefits.

However, the following taxes you will pay during the H1-B holder tax filing:

1) Social Security

Contributing to social security is similar to putting money down for a rainy day fund that will pay off in your golden years. In addition, it will assist you in obtaining a pension when you retire. As a rule, you must contribute 6.2% of your gross salary to this account. In addition, your company will make a matching contribution to the social security fund.

2) Medicare

This tax, like your pension, covers medical expenditures after you retire. Medicare costs 1.45 % of your gross wage, and your employer contributes an equal amount.

Whether or not you stay in the United States after retirement has no bearing on your Medicare and Social Security taxes payment.

3) Federal income tax

As an H1-B visa holder, you will pay a federal income tax of 25% to 28% on your taxable income. It is determined by your annual income and your filing status (married or single).

Furthermore, you will be taxed the same as a US resident if you file as a non-resident foreigner, but you may not be eligible for the same tax incentives.

However, if you choose to file as a resident, you will receive some tax benefits. As a result, assess the benefits and drawbacks before proceeding with H1B holder tax filing.

4) State income tax

The state of residence in the United States has a significant influence in determining whether or not you are tax liable. In California, for example, state taxes range from 6.5 % to 10% of one’s gross income.

While Alaska, Florida, Nevada, Wyoming, Washington, and South Dakota do not have a separate income tax for non-residents. In addition, you will be taxed on the interest and dividends you earn in the United States in states like Tennessee and New Hampshire.

5) Local taxes

Indian H1B visa holders must pay local taxes of 4% of their gross income. This tax depends on where you stay in the United States. Some towns and cities incur local income taxes.

Please note, though, that in most cases, your local taxes will be covered in your paycheck by your employer as long as you’ve updated the address in your W4 form. However, if you accidentally put the wrong address in the W4 form, you may pay the wrong local taxes.

6) Obamacare

Under Obamacare, your US company will cover the cost of your healthcare. For now, this is a compulsory tax you, as an Indian H1-B visa holder, will be paying; however, this might change.

H1-B holder tax filing: Documents required

It’s critical to get your papers before initiating the H1B holder tax filing procedure. Keep the following documents ready:

1) Social security number

2) W-2 tax form

3) A photo identification card

4) Other sources of investment income

5) Form 1040 NR if you have dependents

6) Receipts that can be used to claim tax deductions

7) If you or your spouse relocated due to your marriage, fill out Form 8852.

8) If you changed your name after marriage, you’ll need to fill out Form SS-5.

9) Complete Form W 4 to report a change in income after marriage.

H1B Income Tax Savers

It’s time to look for ways to save money on taxes when you go for H1B holder tax filing. Following is the list of deductions and tax credits to help you save dollars.

1) Tax deductions: When you choose to pay taxes as a resident of the United States, you can deduct expenses such as your mortgage, health care, and dental care. Please submit the necessary receipts to claim them.

2) Investments: If you’ve made stock market, fixed deposit, or retirement plan investments, you’ll be able to claim tax deductions.

3) Medical deduction: File Form 1040 with Schedule A to claim the medical deduction. If your medical costs were more than 7.5 percent of your adjusted gross income, you may be eligible for this benefit.

4) Charitable donations: Giving to social causes and charities can help you save money on taxes.

5) Moving expenditures: You can claim a tax deduction on your moving expenses if you relocate from India to the United States or any other state in the United States.

6) Dependents: You can claim your family as dependents and deduct your taxable income except for your spouse. They will, however, be obligated to file taxes, either jointly or separately, with you.

7) Medicare on OPT: If you are on OPT (optical training test) and have an H1B visa, you can claim the Medicare amount withheld by your employer.

The H1B holder tax filing is not as complicated as you think. If you follow the above steps, it’s possible to file your taxes on time and be in the good books of the IRS (Internal Revenue Service).In case you are an Indian who is new to H1B visa holder tax filing, you can connect with AOTAX for guidance. Our team of tax planners and advisors will help you pay your taxes on time and save some serious dollars in the process. Thanks to the 25-years of being in your service, we know our work!

Tax Filing for Indian H1B Visa Holders: All You Need to Know

by aotax | Jan 6, 2022 | tax filing

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 employers could 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.

However, specific provisions allow for entitlement to certain itemized deductions and exemptions based on marital status and whether you have dependents.

What documents do I need for H1B tax filing?

Preparing the required documentation can be a daunting task, but the general rule of thumb stipulates keeping the following handy:

Photo ID.
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

Filing-your-taxes-for-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.

We offer:

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.

AOTAX can help you analyze and plan your tax filing. Book an advisory appointment here. Sign up now and file your taxes on AOTAX today.