H-1B Visa U.S. Income Tax & the IRS
Taxes & H-1B Visa: IRS Tax Return Rules for U.S.Residents The IRS Tax Return Rules for U.S.Residents are complex, and the IRS is in full enforcement mode. Generally, U.S. income tax and offshore reporting refers to legal permanent residents (Green card holders) and U.S. citizens. But, there is a another group of individual U.S. Persons who may become subject to U.S. tax and offshore reporting on their worldwide income and assets.
When a non-resident and non-citizen foreign national meets the substantial presence test, they may become subject to U.S. income tax and offshore reporting on their worldwide earnings and assets. One of the more common types of visa holders subject to the substantial presence test, are H-1B visa holders. Other common visas include L-1, E-3 B1/B2 and EB-5.
H-1B U.S. Tax Guide to the Basics
The taxes & H-1B Visa analysis is complex. Many H-1B Visa holders may not realize they have a U.S. income tax and offshore asset reporting requirement until they have already missed it in prior years and may have to consider voluntary disclosure aka tax amnesty.
In recent years, the Internal Revenue Service has taken an aggressive approach to enforcing foreign accounts compliance an unreported foreign income. The failure to get into compliance may result in offshore penalties, but there are several IRS programs you may use to reduce, minimize, eliminate, and abate these penalties.
What is an H-1B Visa?
If you are unsure what the H-1B visa is, or just conducting some research, here are the basics from the USCIS website:
Your employer or agent may file a petition to classify you as an H-1B temporary worker if you work in a specialty occupation, engage in cooperative research and development projects administered by the U.S. Department of Defense, or are a fashion model of distinguished merit and ability.
There are three types of individuals who may have petitions filed on their behalf under the H-1B category.
- Specialty Occupations. Typically, companies file for individuals to come to the United States to perform services in specialty occupations. These positions normally require bachelor’s degrees (or higher) in a specialty field.
- Department of Defense Cooperative Research and Development Projects. Individuals who will be engaged in cooperative research and development projects administered by the U.S. Department of Defense are eligible.
- Fashion Models. Individuals who are fashion models of distinguished merit and ability are eligible.
Below are some key requirements that you must meet to be classified as an H-1B Temporary Worker:
- You must have an employer-employee relationship with the petitioning U.S. employer.
- Your job must qualify as a specialty occupation by meeting one of the following criteria:
- A bachelor’s or higher degree, or its equivalent is normally the minimum requirement for the particular position;
- The degree requirement is common for the position in the industry, or the job is so complex or unique that it can only be performed by someone with at least a bachelor’s degree in a field related to the position;
- The employer normally requires a degree or its equivalent for the position; or
- The nature of the specific duties is so specialized and complex that the knowledge required to perform the duties is usually associated with the attainment of a bachelor’s or higher degree.
- Your job must be in a specialty occupation related to your field of study.
- The petitioning employer must submit evidence that a labor condition application (LCA) has been certified by the U.S. Department of Labor.
- You must be paid at least the actual or prevailing wage for your occupation, whichever is higher.
- An H-1B visa number must be available at the time of filing the petition, unless the petition is exempt from numerical limits.
Taxes & H-1B Visa Example (From India to the U.S.)
Michael is from India. He came to the United States about 10-years ago to finish up his studies on an F-1 visa, and then then began working on an H-1B visa. When he was on F1 visa coming he was on it for less than five years and was therefore not considered a U.S. person under the substantial presence test (the first five years on an F1 visa the person is generally exempt).
Since his U.S. assets and income were relatively straightforward, he did not think to report more than his U.S. income and 1099’s he received from U.S. financial institutions — and did not speak with a tax professional.
Since Michael came to the United States a bit later in life, he already accumulated a nice-sized investment portfolio back in India – as well as the UK and Australia where he’d also worked as a consultant previously to relocating to the United States.
- Mutual Funds
- 2 Rental Properties in the UK
Michael Receives a FATCA Letter
Recently, Michael updated his foreign financial institutions in India, the UK and Australia about his U.S. status. Soon thereafter, he received a FATCA letter from both ICICI and SBI asking about his U.S. status.
Thereafter, Michael conducted some online research, and learned that he has been non-compliant for many years involving all of the unreported income, assets, investments, and income from overseas.
Worldwide Income, Taxes & H-1B Visa
The United States is one of the few countries that bases income on citizenship and permanent residence status as opposed to “resident or location” (aka CBT).
In other words, if a person is a U.S. citizen, legal permanent resident, or meets the substantial presence test, they become subject to US tax on their worldwide income.
It does not matter that they are a citizen of another country. If the filer also has tax credits for making payments on taxes in foreign countries the taxpayer may receive a foreign tax credit.
Still, all of the income the taxpayer has across the globe must be reported.
*A citizen or legal permanent resident may qualify for the foreign earned income exclusion and housing exclusion to reduce earned income upwards of $100,000 per year.
**Depending on which country the person has income, some of the income maybe exempt from U.S. tax at the time it is earned, such as certain pension contributions in the U.K. likewise, depending on whether there is a tax treaty or not may determine whether the growth within the retirement fund is taxable, tax exempt, or somewhere in the middle.
FBAR & FATCA for H-1B Visa Holder
When a person is considered a U.S. person and they meet the substantial presence test, they also become subject to the reporting all of their foreign accounts, assets, and investments — in addition to their overseas income requirements.
Two of the most common forms that an H-1B visa holder may have to file are the FBAR and 8938. The FBAR is the Foreign Bank and Financial Account Reporting Form aka FinCEN Form 114. The 8938 is required under FATCA (Foreign Account Tax Compliance Act).
The failure to file these forms timely may result in significant fines and penalties. The penalties range from the benign (warning letter in lieu of penalty) all the way up to a 50% penalty on the maximum value of the unreported accounts — up to a total value in a multi-year penalty period of 100% value of the money.
There are various other forms that the person may have to file as well, and there maybe other penalties – but the IRS has also developed various amnesty programs such as FBAR Amnesty and FATCA amnesty to reduce these penalties.
Collectively, the programs are referred to as offshore voluntary disclosure.
We Specialize in Streamlined & Offshore Voluntary Disclosure
Our firm specializes exclusively in international tax, and specifically IRS offshore disclosure.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe. Our attorneys have worked with thousands of clients on offshore disclosure matters, including FATCA & FBAR.
Each case is led by a Board-Certified Tax Law Specialist with 20-years experience, and the entire matter (tax and legal) is handled by our team, in-house.
*Please beware of copycat tax and law firms misleading the public about their credentials and experience.
Less than 1% of Tax Attorneys Nationwide Are Certified Specialists
Our lead attorney is one of less than 350 Attorneys (out of more than 200,000 practicing California Attorneys) to earn the Certified Tax Law Specialist credential. The credential is awarded to less than 1% of Attorneys.
Recent Case Highlights
- We represented a client in an 8-figure disclosure that spanned 7 countries.
- We represented a high-net-worth client to facilitate a complex expatriation with offshore disclosure.
- We represented an overseas family with bringing multiple businesses & personal investments into U.S. tax and offshore compliance.
- We took over a case from a small firm that unsuccessfully submitted multiple clients to IRS Offshore Disclosure.
- We successfully completed several recent disclosures for clients with assets ranging from $50,000 – $7,000,000+.
How to Hire Experienced Offshore Counsel?
Generally, experienced attorneys in this field will have the following credentials/experience:
- 20-years experience as a practicing attorney
- Extensive litigation, high-stakes audit and trial experience
- Board Certified Tax Law Specialist credential
- Master’s of Tax Law (LL.M.)
- Dually Licensed as an EA (Enrolled Agent) or CPA
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No matter where in the world you reside, our international tax team can get you IRS offshore compliant.
We specialize in FBAR and FATCA. Contact our firm today for assistance with getting compliant.