While working in the US with H1B status, you will be required to pay tax on your earnings to the US tax authority, known as the IRS (Internal Revenue Service). Your classification for tax purposes, and the level of tax that you pay, will be determined by whether you are a resident alien or a non-resident alien.

In this general guide, we set out the basic principles on determining US residency status for tax purposes, although as immigration attorneys, we do not provide advice on US tax matters, and if you are in doubt, it is recommended to seek guidance from specialists US tax advisers.

 

US Tax Rules for H1B Resident Aliens

 

A resident alien must pay tax on their income in the same way a US citizen does. You will be required to report your worldwide income, both from within the US and abroad, in your annual tax return.

A resident alien files their annual tax return in the same way as a US citizen and may claim the same deductions as US citizens do. Examples of eligible deductions include certain medical expenses, real estate taxes, charitable contributions and theft losses. They may also apply for tax credits in the same way that US citizens would, including credit for the elderly and disabled, child tax credit and foreign tax credit.

Whereas a resident alien must report income from all sources, both inside and outside the US, a non resident alien is only required to report and therefore pay tax to the IRS on income earned within the US.

The IRS can’t demand that a non resident alien pays tax on any income earned in a foreign country.

 

Definition of ‘alien’ for immigration and tax purposes

 

USCIS (US Citizenship and Immigration Services) and the IRS hold different definitions of alien classification. For immigration purposes only, USCIS define a resident alien as a non-US citizen who lives in the US, as either a:

 

a. Permanent Resident: non-US citizens who live in the US under lawful permanent residence status.

 

b. Conditional Resident: foreign nationals who hold a US permanent residence status which depends on certain factors, such as being a spouse of a US citizen or holding an investor visa

 

c. Returning Resident: lawful US permanent residents who have travelled or lived outside the US but are now returning to the US

 

This definition is not used by the IRS when it comes to calculating your tax classification, only by USCIS to identify which foreign nationals have lawful US permanent residence.

As an H1B holder, you do not have lawful US permanent residence, therefore in the eyes of USCIS, you are not a resident alien. However, the IRS have a different definition of ‘resident alien’.

 

Are You an H1B Resident Alien?

 

The IRS definition of a resident alien is a non-US national, residing in the US, who satisfies the requirement of either the green card test or the substantial presence test.

 

Green card test

 

If you have been granted lawful US permanent residency, you will be deemed to have passed the green card test.

As an H1B visa holder, you will not have been granted US permanent residency and therefore cannot be seen to pass the green card test.

 

Substantial presence test

 

This is the test that will generally be relevant to H1B status holders. The parameters of this test are tied to calendar years. To pass the substantial presence test, you must be able to evidence that you have:

 

a. been physically present in the US for a minimum of 31 days in the current calendar year, and

b. been physically present in the US for a minimum of 183 days over the 3 years that include the current year and the 2 years before the current year.

 

The calculation for arriving at the total number of days is all of the days in the current year + one third of the days in the year immediately before + one sixth of the days in the year before that = total number of days.

So, for example, if you were present in the US on a H1B visa for the following, 210 days in 2020, 300 days in 2019 and 90 days in 2018, your calculation would look like this:

210 (all days in 2020) + 100 (one third of the days in 2019) + 15 (one sixth of the days in 2018) = 325.

You were present in the US for more than 31 days in the current year and more than 183 days over the last 3 years so, in this scenario, you would pass the substantial presence test and be categorised as a resident alien.

Where you enter the US on one type of visa before subsequently changing to an H1B visa, this may affect whether your physical presence in the US counts towards the substantial presence test.

For instance, if you entered the US on an F1 visa, then switched over to an H1B visa, the calculation could look like this: 90 days in 2020 on a H1B visa, 2017-2019 in the US on a F1 visa. F visa holders are categorised as exempt individuals so days present in the US with F visa status are not counted towards your substantial presence test.

Your eligible physical presence in the US that can be counted towards the substantial presence test is therefore 90 days. This is more than 31 days in the current year but less than the required 183 days over the last 3 years. You therefore do not meet the requirements of the substantial presence test.

Should your status change during the current year from a non resident alien to a resident alien, or from a resident alien to a non resident alien, for that year only you are deemed to be a Dual Status Alien.

For the part of the year where you are a resident alien, you will be taxed on that basis. Equally, for any part of the year, where you are a non resident alien, you will be taxed accordingly. In this situation, you should file a Dual Status Return instead of the normal tax return.

There are certain situations where, even though you are physically present in the US, you can’t count these days towards the substantial presence test. These include days where:

 

a. you commute to work in the US from your residence in Canada or Mexico, where this is a regular practice for you.

b. you are in transit between two places outside the US and you are present in the US for less than 24 hours.

c. you are in the US as a crew member on a foreign vessel.

d. you are prevented from leaving the US by a medical condition which develops during your time in the US.

e. you are deemed to be an exempt individual.

 

An exempt individual is only exempt from their presence in the US counting towards the substantial presence test, not exempt from paying tax. Exempt individuals include:

 

a. foreign government related individuals in the US on a temporary basis under A or G visas (not A3 or G5 visas)

b. teachers or trainees in the US on a temporary basis under J or Q visas

c. students in the US on a temporary basis under F, J, M or Q visas

d. professional athletes in the US on a temporary basis for the purpose of participating in a charitable sports event

 

For days uncounted towards your substantial presence due to a medical condition preventing your departure from the US or because you were an exempt individual, you must complete a Statement for Exempt Individuals and Individuals with a Medical Condition form 8843 to accompany your tax return.

If you pass the substantial presence test, and have been physically present in the US for a minimum of 31 days in the current calendar year and a minimum of 183 days over the 3 years that include the current year and the 2 years before the current year, then yes, you will generally be treated as a resident alien for tax purposes.

If you don’t pass the substantial presence test then, for the time being at least, you will be a non resident alien for tax purposes.

 

Non-Resident Alien Spouse

 

Where a non-resident alien is married to either a resident alien or a US citizen by the end of a tax year, you may choose to treat the non resident alien spouse as a resident alien.

Should you take this option, you and your spouse must make a joint tax return for that first year. However, in subsequent and later tax years, you may choose whether to make separate or joint tax returns as long as one of you continues to be a US citizen or a resident alien.

 

Take Professional Advice

 

This article serves as a general guide for H1B visa holders, and as US immigration attorneys, we are not able to advise on tax status. If you are unsure about your US-based tax obligations, take advice from a US tax professional to ensure you are fully aware of your tax categorization, as a resident alien or a non-resident alien.

 

Is H1B Resident Alien FAQs

 

Is an H1B visa holder considered a resident alien in the US?

An H1B visa holder can be considered a resident alien if they meet the IRS Substantial Presence Test, which determines if they have been in the US long enough to qualify as a resident for tax purposes.

 

What is the Substantial Presence Test?

The Substantial Presence Test is a method used by the IRS to determine if a non-US citizen qualifies as a resident alien based on the number of days spent in the US over the past three years.

 

Do H1B holders pay taxes as resident aliens?

If an H1B holder qualifies as a resident alien under the Substantial Presence Test, they must pay taxes like a US citizen on their worldwide income. Non-resident aliens are only taxed on income sourced from the US.

 

What happens if I do not meet the Substantial Presence Test?

If you do not meet the Substantial Presence Test, you are classified as a non-resident alien and will only be taxed on income earned from US sources. You will not have the same tax obligations as a resident alien.

 

Can an H1B holder be both a resident and non-resident alien in the same year?

It is possible for an H1B holder to have dual status in a single tax year. This typically occurs when the visa holder moves to or leaves the US during the year and meets the criteria for part of the year.

 

What are the tax implications for dual status aliens?

Dual status aliens must follow different tax filing rules. They may need to report income as a resident alien for part of the year and as a non-resident alien for the remainder. Consulting a tax professional is advised.

 

How can I ensure compliance with US tax laws as an H1B holder?

To ensure compliance, familiarize yourself with IRS guidelines, maintain accurate records of your time in the US, and consider consulting a tax professional to understand your specific obligations and residency status.

 

Glossary

 

Term	Definition
H1B Visa	A nonimmigrant visa allowing US companies to employ foreign workers in specialty occupations.
Resident Alien	A non-US citizen who meets the IRS criteria for residency and is taxed on worldwide income.
Non-Resident Alien	A non-US citizen who does not meet the IRS criteria for residency and is taxed only on US-sourced income.
Substantial Presence Test	A method used by the IRS to determine if a non-citizen has been in the US long enough to be considered a resident alien for tax purposes.
Dual Status Alien	A non-citizen who is considered both a resident and non-resident alien in the same tax year, due to their time spent in the US.
Worldwide Income	All income earned from any source around the world, which resident aliens are required to report for tax purposes.
IRS (Internal Revenue Service)	The US government agency responsible for collecting taxes and enforcing tax laws.
Form 1040	The tax form used by resident aliens and US citizens to report their income to the IRS.
Form 1040NR	The tax form used by non-resident aliens to report their US-sourced income to the IRS.
Visa	A document issued by a US consulate or embassy allowing a foreign national to enter the US for a specific purpose and duration.