Hello,

I was on F-1 from 07/2002 - 07/2007 and then on OPT from 07/2007 - 10/2007 and now I am on H1B from 10/2007. Am I a resident for tax purposes or a dual citiizen?

Thanks foe the help!

Best Regards

Hello

Since you started your H1B in October, you do not meet the days to pass the Substantial Presence Test.

Hence you are considered a Non Resident Alien for Tax Purposes.

You have to File Form 1040NR .

(You need not file Form 8843, like you used to do in F1, as you no longer have FICA exemption, under H1B Visa)

Based on your country, you may get some Tax Treaty benefits.

Please feel to contact us for any Tax Preparation Services.

Hope this helps!

Hi VTE,

Thanks for the clarification. Since, I have paid tax for 5 calendar years (2002, 2003, 2004,2005 and 2006), shouldn't I be resident for taxes in 2007?

Best Regards,

Indranil

Indranil:

VTE's guidance was accurate, based on what he knew when he posted his answer.

However, you ARE correct that you will file as a resident alien IF you arrived in the U.S. on your F-1 visa in 2002 and was under your F-1 visa from 2002 through 2006.

Your exempt status expired on 31 December 2006, and you gained resident status starting on 1 January 2007.

Additionally, you have the legal obligation to inform your employer of this fact so that he/she can decide on whether they should collect back FICA taxes for 2007. Make this notification in writing and keep a copy for your records.

Hello ATE,

Thanks for your response.

My F-1 visa expired on 07/2007. I started working from 08/2007 on F1-OPT and then moved to H1B in 10/2007. I had given all my paperwork to my employer when I started working. My employer did not deduct FICA taxes till 10/2007 but after 10/2007, I have been paying SSN and Medicare. Do I still need to submit any additional paperwork to my employer?

Best,

Indranil

Yes.

On 1 January 2007, you became a resident alien due to the 5-year rule. You MUST inform your employer of that fact!

Here is why:

The IRS position on such matters is clear: It is the responsibility of the EMPLOYER to properly determine the tax status of its employees in order to decide whether to withhold Social Security and Medicare taxes and pay such employment taxes. If the employer fails to do so, the IRS holds the EMPLOYER responsible and does not even bother the employee in such matters.

There is, however, one exception to that rule, and that is if the employee is found to ACTIVELY CONCEAL his true tax status.

Up until you read my answering post, you probably did NOT know that you were obligated to pay Social Security and Medicare taxes starting on 1 January 2007. However, now that you DO know, you must inform your employer of that fact. If you do not, and your employer finds out about it, they can use the defense that you ACTIVELY CONCEALED YOUR TRUE TAX STATUS! If that happens, and the IRS concurs, then the IRS will come after YOU for the back FICA taxes.

Not only would the costs of such an action be odious (probably TWICE what you would have paid to begin with), but it would also probably cripple any chance you would have to get a Green Card.

More than likely, once you notify your employer about your changed status, they will DO NOTHING!

The reason is simple: If they attempt to collect the back FICA taxes from you, they will incur HUGE filing and late payment penalties (remember that the IRS expected them to have figured this out themselves last year). Once they determine that they will incur such a large fine, they may leave well enough alone and hope that no one at the IRS will ever notice. Statistically, the odds are in their favor that this will happen.

BOTTOM LINE: Tell your employer about your changed status in writing (email is good for this), then hope for the best.

Hi ATE,

I appreciate your time and effort in answering my questions.

I worked part-time as a student at an university from 01/2007 - 08/2007 and as an employee for a company from 08/2007 - Present. My university also didn't deduct SSN and medicare taxes from 01/2007 - 08/2007. My company also did not deduct SSN and medicare taxes from 08/2007 - 10/2007.

1. I was on F-1 from 07/2002 - 07/2007, so did I attain resident status for tax purposes on 07/2007 or 01/2007?

2. What should I write in an email/letter to both my university and current employer?


Best,

Indranil

If you worked for the university part-time as a student, you are exempt from Social Security and Medicare taxes for THAT job. That exemption applies for ALL students, not just international students.

The company job that started in August, 2007 should have withheld Social Security and Medicare taxes. That is the company you must inform about your resident alien status for 2007, which started on 1 January 2007.

The time in 2002 counts as a FULL YEAR, even if you only spent as little as ONE DAY of 2002 on a F-1 visa. I actually had a client last year who entered the U.S. on their F-1 visa on 31 Dec 2001. For her, 2001 counted as a FULL YEAR.

Hello ATE,

From some of your previous emails on a similar topic, I found out that you have mentioned that an employer can obtain unpaid SSN and medicare tax till 31 Jan 2008 for SSN and medicare taxes due in 2007.

But, I was looking at Publication 15 Circular E and on page 28 of this document, it says that the employer has time till the end of the calendar year to obatin unpaid SSN and medicare taxes from the employee.

So, is 31 Jan 2008 or 31 Dec 2007 the end of calendar year 2007 ?

Best Regards,

Indranil

Indranil:

The employer has until the 31st of January of the succeeding year to collect back FICA taxes.

The reason is that is the deadline to file their LAST quarterly employer's tax return (Form 941).

I have confirmed this TWICE with the IRS via the IRS International Tax Hotline.

Hello,

Thanks for the helpful information.

My wife is on H1-B (since Oct 2007, previously from 2003 she was on F-1) .

She was thinking of filing as a non-resident. Can she take the standard deduction of $5350?

We think that her filing as a Non- resident and me filing as a resident will prove the best ofr us since we both earned our incomes in different states (I earned in IL and OH and she earned in IL). Any suggestions?

Best,

Indranil

Indranil:

She CAN file as a non-resident alien, and. Because she was a student from India (I assume india based on your name), she CAN claim the $5,350 standard deduction.

However, you can file jointly and you BOTH choose to be treated as resident aliens for all of 2007. You BOTH will be resident aliens in 2008 anyway, so there is really NO DOWNSIDE to filing jointly for 2007. It will be easier to file ONE joint return and TWO separate returns, and if you file jointly, you may be able to deduct tuition costs or claim a tuition credit.

Now, as for the state returns, filing married filing jointly almost always results in a lower tax bill than filing married filing separately. Your Ohio income will NOT be taxed by Illinois, nor will her and your Illinois income be taxed by Ohio.

The best way to go is probably to file jointly as resident aliens, and file jointly in Illinois and Ohio.

Hi ATE,

Again, thanks a lot for the tips.

But, my wife was working on her F1-OPT from 01/2007 - 10/2007. During that time, her SSN and medicare taxes were not withheld. Now, if she files as resident, won't she have to pay SSN and medicare that she didn't pay during 01/2007 - 10/2007?

Best,

Indranil

The IRS will NOT go back and try to collect the back FICA taxes, because at the time of the withholding, she had NOT yet made the First Year Choice.

Hello ATE,

That's nice to know. Do I need to attach any paper-work along with my returns to claim " First Year Choice" for my wife?

Best,

Indranil

You need to attach a SIGNED statement that says you BOTH qualify for First Year Choice and that you both CHOOSE to be treated as resident aliens for ALL of 2007. You BOTH must sign it.

Hello ATE,

Thanks for your response. So, do I need to wait till some date to file my return or can I file my return in Feb'08?

Can you also please tell me where should I look in Publication 512 to find details on First Year Choice? I searched on the web, but found Publication 512 for 2006 and not for 2007.

Best Regards,

Indranil

The IRS pub is 519, and the 2006 version is the latest one available.

Based on your and your's wife's conversion to H-1B visa status in October 2007, you will need to wait until 2 June 2008 to file as resident alien.

If you have no credits to claim, you may want to file separately as non-resident aliens for 2007 because, as Indian student, you BOTH get to claim the $5,350 standard deduction and your own $3,400 personal exemption.

It is possible that filing jointly is no better than filing separately, and you can file separately RIGHT NOW!

Thanks ATE. Before I put my query, I will mention my details again. Sorry for repeating the information, but after looking at the volume of emil that you respond to, I think stating my details again will be beneficial for you :). I sincerely appreciate the help that you provide on this website and it motivates me to also do likewsie for the areas that I am knowledgeble in.

I was a resident alien from 1 Jan 2007 (since I have been in USA since 2002) and my wife was on F-1-OPT from 1 Jan 2007 - 30 Sept 2007 and then she went to H1-B from 1 Oct 2007.

I read the part "Non resident spouse treated as a resident" in Publication 519 and from page 10, I infer the following things. Please let me know if my interpretation are correct or not:

1. Since I was a resident alien from the 1-Jan 2007, I and my wife can file as married filing jointly (resident alien) in Feb'2008 and I don't need to wait for any date (e.g. 2 Jan 2008).

2. Though my wife didn't pay any FICA taxes when she worked from 1 Jan-2007 to 31 Sept 2007, IRS DOESNOT expect her to pay that since she made a choice of being a resident alien in 2008.

Best Regards,

Indranil

Okay, I thought you were BOTH 1 Oct 07 H-1Bs.

Since you are NOT, then you do NOT have to wait. YOU are already a resident alien due to the five-year rule on F-1 visas.

Your wife will need to sign a statement staing that she is a non-resident alien spouse CHOOSING to be treated as a resident alien for all of 2007, but other than that, you can file RIGHT NOW if you want!

Thanks ATE, was my interpretation right regarding number 2?

Yes, that is correct: the IRS will NOT try to collect back FICA taxes if your wife chooses to be treated as a resident alien for 2007.

Yes, that is correct: the IRS will NOT try to collect back FICA taxes if your wife chooses to be treated as a resident alien for 2007.

Well, I was say that the IRS is entitled by law to collect them. ATE is relying on the fact that they probably won't because it will slip through the administrative cracks, so to speak. There's no reason under the law as to why they should not collect them.

TTE and I have argued this point for about 18 months. He believes that the IRS has legal standing to collect these taxes; I disagree.

Let's leave it at that.

Hello ATE,

I called IRS at the number you had given me previously (2155162000). They said that if my wife chooses to be treated as a resident alien for 2007, then she is liable for the SSN/medicare taxes that she did not pay when she was working in 2007 on F1-OPT.

As I have told before, I was in USA since 2002, but from Aug-2007 - Sept 2007, my FICA taxes were not withheld by my employer since I worked on F-1-OPT. I have already notified my employer regarding the mistake that they did.

Now, if I choose to file as a resident, won't the IRS question that why didn't I pay FICA taxes on a part of my income that I earned in 2007?

Should I attach a separate letter saying that my FICA taxes were not withheld and I have already notified my employer regarding this?

Best,

Indranil

There have been multiple postings on this issue.

BOTTOM LINE: If you bring this situation to the IRS' attention and INSIST on a ruling, the odds are that SOMEONE will be required to pay the back Social Security and Medicare taxes.

In my opinion, the IRS will go back to the EMPLOYER and demand payment, plus penalties, plus interest.

The EMPLOYER, upset that your insistence on a ruling brought this huge fine down on their head (the total cost could exceed TWICE what the original taxes would have been), will pay the fine (what choice do they have? ), but then they will identify you as the informant, terminate your employment and then confiscate whatever salary is owed to you as partial payment for the back taxes that should have been collected from your salary in years past.

You probably could recover the confiscated salary if you challenged the employer's legal authority to collect the back FICA taxes well after the 31 January closing date, but the legal costs of such a challenge would be prohibitive.

The same logic applies to your wife's situation.

In my opinion, if you attach the letter to your tax return, this becomes a no-win situation. The same applies if you attached Form 8919 to your tax return and pay your half of the FICA taxes.

Whereas if you leave it with your company and let THEM decide what to do, the consequences will not be anywhere near as bad.

Just my opinion...

Hello ATE,

Thanks.

So, I guess I am just going to file my taxes as a resident and not mention anything regarding the FICA taxes in my return.

Also, I will just wait to see if my employer does anything regarding their error. I feel that they will probably just ask me to pay my share and then pay their share and the penalty to IRS. My company is pretty huge (>40B in sales) so I guess they will want to do things by the book :)

Best,

On your part, if the company asks you to pay your share of the FICA taxes, the ethically-correct thing for you to do is to pay it.

But do not be surprised if NOTHING HAPPENS.

It has been my experience that, most of the time, that is the eventual result.

Hello ATE,

I called IRS at the number you had given me previously (2155162000). They said that if my wife chooses to be treated as a resident alien for 2007, then she is liable for the SSN/medicare taxes that she didnot pay when she was working in 2007 on F1-OPT.

As I have told before, I was in USA since 2002, but from Aug-2007 - Sept 2007, my FICA taxes were not withheld by my employer since I worked on F-1-OPT. I have already notified my employer regarding the mistake that they did.

Now, if I choose to file as a resident, won't the IRS question that why didn't I pay FICA taxes on a part of my income that I earned in 2007?

Should I attach a separate letter saying that my FICA taxes were not withheld and I have already notified my employer regarding this?

Best,

Indranil


Which proves my point that the IRS is perfectly entitled to collect the tax, and ATE's argument relies entirely on them simply not catching it.

The fault does not lie with the employer, but with the employee. In such cases as this, the employee should know that the residency election will be made and inform the employer at the start of the year that they should be treated as a resident. On that basis, an employer should hold the employee responsible.

I disagree about the employee being held SOLELY responsible.

Most employees in this circumstance, while higly educated by most standards, have NO CLUE about how the U.S. tax system applies to them. They do not even know they have the option to file as a resident alien with their spouse until they read about it on forums like this one, usually AFTER the tax year has ended.

The employer, on the other hand, has been employing non-resident aliens on OPT (who then become their H-1B employees) for years, and in some cases, decades. They should make it a point to explain to every potential employee what the coming year has to offer and what tax options they will have if they offered a permanent position.

But they do NOT do that, often because they do not want the OPT intern to think they have the "inside track" to get a job before it is offered (even when they DO have that inside track), because, (I FIRMLY believe that) these companies look at the OPT intern for what they are: a source of "cheap, foreign labor" who are willing to work at high-skilled IT position for a fraction of the salary that their American counterparts will work. Further, given these circumstances, it is unrealistic to expect any OPT intern to look a YEAR OR MORE into the future and decide that they will be filing as resident aliens for a job they may or may not get!

For this reason, since the employer will NOT be upfront with these OPT interns when they first start working for the company, I see no reason to penalize the OPT interns for selecting the best possible filing option when the time comes for them to file. Once they file, they should notify their employer that they selected that "resident alien" option and then leave it to the EMPLOYER to clean up the resulting mess in trying to collect and pay the back FICA taxes. I say as much in my posts above.

Further, if the IRS were serious about properly collecting these taxes, they have all the information they need when the ex-intern files his First Year Choice return with the W-2 that has little or no Social Security or Medicare taxes listed in Blocks #3 and #5. It would be a simple matter for the IRS to identify such cases, and then contact the employer to start collecting the required taxes. The employer (and the ex-intern) would even cooperate if the IRS did not insist on imposing the massive penalties of 100% of taxes owed when the back FICA are collected.

BOTTOM LINE: There is MORE than enough blame to go around in this situation. Everyone (Congress, for passing the laws; the IRS, for failing to properly follow up; the employer, for trying to exploit the intern; the employee, for taking advantage of the law) has his share.

I disagree. Ignorance of the law is no excuse. When an employee fills out their paperwork, they tell the employer that they are non-resident. If they want to, they can tell the employer that they are electing residency. If they fail to do so, then they should simply not make the election at year end.

I would say that in the future the IRS will begin to figure out how to track this better.

Hello,

In 2007, I worked for my univeristry from 01/2007 - 07/2007 and then on F1-OPT from 08/2007 - 09/2007 and on H1B from 10/2007 to 12/2007. I received 2 W2s

1. From my school, the W2 shows that no FICA taxes were withheld from my paychk since I was a student when I worked for my school.

2. The W2 from my employer shows that FICA taxes were not withheld for the portion of my income that I earned on F1-OPT. the W2 shows that FICA was withheld from the time I was on H1B.

So my questions:

1. Since I was in USA from 2002, this year I am filing as resident. Now, after looking at my W2 (from my employer) , what could be the likely courses of action once IRS sees that I didn't pay FICA for the income that I had when I was on F1-OPT.

2. Since I already have sent an email to my employer, is there anything else that I should do before I file my return for 2007?

Thanks

Indranil:

As you can see, TTE and I do not see eye-to-eye on this issue.

I say that you do NOTHING and let the employer resolve it.

I could only guess what TTE would advise, but I suspect he would say to file Form 8919 with your tax return and pay YOUR share of the FICA taxes.

However, if you did that, the IRS would probably then go back to the employer and ask WHY the FICA taxes were not withheld to begin with.

Once they determined that the employer screwed up royally on your account, they would then start looking at every employee account to see if there were MORE cases of them screwing up. I suspect that, given how they messed up your case, they probably messed up others as well.

If that were the case, the back taxes and fines could easily hit SIX figures.

Now, care to take a guess as to HOW the employer would feel about paying such a fine?

Further, how do think they would treat the employee whose HONEST attempt to pay the correct taxes led the IRS to their doorstep? While I grant you that the IRS would NOT willingly reveal your tax return as the source of their revelation, such things CAN be found out.

It IS something to think about!

Hello ATE,

But even if I don't fill 8919, just by looking at my W-2, won't IRS figure out that I owe FICA taxes for part of my income?

Best,

Indranil

That is true, but there are HUNDREDS of THOUSANDS of U.S. citizens who do NOT pay Social Security and Medicare taxes, like most state employees and federal employees who were hired prior to 1984, just to name a few.

You are just one W-2 in that forest of W-2s.

I don't believe I've ever implied that ATE.

I do believe, however, that it is inappropriate for an individual to tell their employer all year that they are non-resident (and should be tax-favored from a FICA standpoint) and then to turn around and claim residency status by election after the fact in order to claim the income tax advantage.

Essentially the onus is on the employee to go one way or the other and I hardly think it is the employer's fault when the employee changes their position after the fact. I think if the employer has documentation from the employee stating that they are NR, then I think the employer is actually on pretty solid ground.

Hello,

ATE: Thanks for your comments.

TTE: When I joined my employer, I gave all my visa documents to my employer. I was never asked my tax status. But, I was asked my visa status and to that I had replied F1-OPT which was the truth. At that point I was not aware of the rule that a taxpayer becomes a resident for tax purposes after 5 calendar years. From the time I was made aware of the fact, I have informed my employer to rectify the mistake. I do agree with you that ignorance can't be the grounds of not paying the tax. But, I do believe that the IRS relies more on the employer than the employee to figure out whether an employee should pay FICA or not. My reasons in believing are:

1. If the IRS thought that as an employee, it was my responsibility to figure out whether I am responsible for FICA, then there was no reason to ask the employer to cut the FICA taxes on my behalf from my paycheck. The IRS would ask all employees to determine their tax status and pay for their FICA taxes. But of course, there are exceptions as in the case of self employed/ contractors who chose to figure out thir own FICA taxes by electing the option of being a self-employee.

2. If a multibillion dollar company (with several esteemed tax consultants at their disposal) like my employer can't figure out whether I am a resident or a non-resident purposes by looking at my visa document, then I don't feel ashamed of being an ignorant whose tax knowledge is based on self-reading.

3. Since I had provided my visa documents upfront while signing for the job, I personally don't feel liable for this error. But all said, I am pretty sure that I have signed some red tape in the thousands of pages that I signed when I was joining the company :)... So, ultimately, the company could produce a document which has my signature and says that all tax responsibilities are mine ;-)

Thanks for the great comments and I feel a little less ignorant now :)

Best,

~I

I -- I was not referring specifically to your case. In fact, my comments were more directed at those where a person elects to be a resident for the year (because they are married to a citizen) or where their status changes but they do not notify the employer.

If you provided your employer with the appropriate documentation, then indeed it is their responsibility to get it right.

TTE:

I agree that if the employee knows GOING IN at the beginning of the year that they are going to file as a resident alien that they should have FICA taxes withheld. To do otherwise is tax fraud!

However, I am glad that you agree that if the employer screws up, the employee should NOT be held accountable for it.