Are You An H1B Resident Alien?
Check your US tax status
Working in the US with H1B status, you will be required to pay tax on your earnings to 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.
Tax implications for an H1B resident alien
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.
Tax implications for an H1B non resident alien
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:
- Permanent Resident: non-US citizens who live in the US under lawful permanent residence status.
- 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
- 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:
- been physically present in the US for a minimum of 31 days in the current calendar year, and
- 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 2018
- 300 days in 2017
- 90 days in 2016
your calculation would look like this:
210 (all days in 2018) + 100 (one third of the days in 2017) + 15 (one sixth of the days in 2016) = 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 2018 on a H1B visa
- 2015-2017 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:
- you commute to work in the US from your residence in Canada or Mexico, where this is a regular practice for you.
- you are in transit between two places outside the US and you are present in the US for less than 24 hours.
- you are in the US as a crew member on a foreign vessel.
- you are prevented from leaving the US by a medical condition which develops during your time in the US.
- 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:
- foreign government related individuals in the US on a temporary basis under A or G visas (not A3 or G5 visas)
- teachers or trainees in the US on a temporary basis under J or Q visas
- students in the US on a temporary basis under F, J, M or Q visas
- 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 treated as a resident alien
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.
H1B resident alien tax status
Take specialist tax advice to ensure you are fully aware of your tax categorisation, as a resident alien or a non-resident alien, that you know exactly what income you must report and what deductions you may be able to claim, that you have compiled all the relevant information, have completed your tax return fully and correctly, and to assist you in all communications with the IRS.
This article does not constitute direct legal advice and is for informational purposes only.