Hi,

I am on H1B visa and will be outside USA for more than full calender year. Do I have to pay
Any tax Fed. state, including Social security medicare etc..

Thanks,

Prafulla

Yes, you do.

Hi,

Thanks for your answer. I have a residence at France and working in an International organization. Some of my friend do not pay any tax even of they have job in USA and on H1B. I do not know how is it possible.

Thanks

If you have H1-B visa and are in the U.S. and have income, it is subject to the U.S. taxes.

If you have H1-b visa and you live outside the U.S. then you are foreign alien for the U.S.-- you are neither resident of the U.S. nor are non-resident. You are foreign person. Ask you company not to hold any taxes on your income.

Sorry, this time MukatA's interpretation is not correct.

Due to your H-1B visa status, the U.S. government considers you to be a resident alien and therefore subject to U.S. taxes, regardless of your physical location.

The only time that would NOT apply would be if the USCIS did not ALLOW you to return to the U.S. In that case, the refusal to allow your return would have the effect of revoking your H-1B visa status.

This past tax season, I submitted an amended return for a client in Pakistan for his 2006 tax return on that basis.

ATE, if PK123 doesn't meet the green card test or the substantial presence test, what would make him be treated as a resident for U.S. tax purposes?

I posed the same question to the IRS for the 2006 tax season, and they said the fact that the taxpayer was under a H-1B work visa made him the equivalent of a U.S. citizen working overseas.

Now, the H-1B visaholder could and probably should file Form 2555 to claim the Foreign Income Exclusion to gain relieve from federal income taxes and possibly state income taxes, depending on the state, but he/she still would be liable for the Social Security and Medicare taxes on the salary paid by the U.S.-based employer.

I believe the IRS was wrong. This is not unusual. They were probably thinking about someone with a green card, rather than someone with an H1-B visa. The individual above didn't meet the green card test or the substantial presence test. Thus, they should not be considered U.S. tax resident for that year.

Perhaps.

What say you about the FICA (Social Security and Medicare) taxes, which are withheld and paid by the employer?

No FICA taxes would be due for a nonresident alien that performs services outside the U.S. even if paid by a U.S. employer.

I suspect that the IRS does NOT agree with your interpretation of the rules, and I would be willing to bet a client's fee that our poster's U.S. employer IS withholding the FICA taxes.

Hi ATE,

I do not agree with you on this. I talk to all of my friends who work here from USA do not pay any tax as they are out of USA. I do not know if there is any limit on the income.

PK:

I have not doubt that they do NOT pay the taxes, and in fact, using Foreign Income Exclusion, they can and should NOT pay taxes on income earned outside of the U.S.

However, if they are on H-1 or H-1B visas, the IRS considers them to be U.S. residents and are therefore considered to be liable for U.S. income taxes and, most importantly, Social Security and Medicare taxes.

Hi IntITAx,

I have asked my employer not to hold any tax but they still keep my fr=ederal tax and FICA tax, thought they returned my state tax completely and agree not to hold state tax.
Is there any tax booklet that I can show them, so that they won't hold any tax.

Thanks,

Prafulla

I cannot provide such a citation, because, as stated, it is my belief that you ARE liable for both income and FICA taxes while you are on H-1B status.

Your U.S. employer has an obligation to withhold if you are a resident of the U.S. The analysis to determine whether you are a resident of the U.S. is complex and may depend on your future actions (e.g. if you come to the U.S. for a certain number of days during the calendar year). If 1) you do not have a green card at any point during a calendar year, 2) you are present in the U.S. for less than 31 days during a calendar year, and 3) you are not married to a U.S. citizen or resident, then you should NOT be treated as a resident.

If the employer did not withhold, and was required to withhold, the employer can be held liable for the tax. Thus, they are being cautious and withholding. If you are not treated as a resident for the calendar year, then you can file a U.S. tax return at year end and obtain a refund for the U.S. taxes withheld.

Can I get FICA tax back as well? How? I heard it is difficult to get FICA tax once paid.

Yes, you should be able to get FICA back as well. See Form 843. You will need to explain that you were not a resident at all during the year and therefore no FICA tax is due.

What would be your IRC or IRS pub citation in the Form 843 submission requesting a refund of these FICA taxes?

I.R.C. 3121(b):

[T]he term "employment" means any service, of whatever nature, performed (A) by an employee . . . (i) within the United States, or (ii) . . . . or (B) outside the United States by . . . a citizen or resident of the United States . . .

The service is not being performed in the U.S. PK123 is not a U.S. citizen or a U.S. resident. Thus, the services being performed do not meet the definition of "employment." This means that the compensation he receives is not "wages" as defined in I.R.C. 3121(a). This means that the compensation is not subject to FICA tax under I.R.C. 3101(a).

IntlTax:

I disagree, though I AM making an assumption in my explanation below, that assumption being that PK123 filed Form 1040, 1040A or 1040EZ as an H-1B visa holder in a tax year previous to 2007. If so, then the IRS DOES consider him/her to be a U.S. resident for tax purposes by virtue of the fact that he/she filed that prior-year resident tax return.

Further, even if PK123 never filed the resident tax return, the IRS will ASSUME, by virtue of the fact that PK123 has a H-1B visa, that he is a resident alien if the H-1B visa was effective prior to 1 January 2007.

In other words, PK123 will have to make the case that he/she has NOT met the Substantial Presence Test in order to avoid taxation on his/her 2007 salary.

If he/she met the test prior to 2007 by filing a resident alien return, he/she remains liable for all world-wide income in all subsequent years irrespective of his/her physical location for the duration of his/her H-1B visa unless and until he/she formally revokes/abandons the H-1B visa.

Just my humble opinion...

Do you have any citation to the IRC or to an IRS publication as to why an alien that does not have a green card and is not present in the U.S. on any day during the calendar year would be considered a resident alien?

No, I do not.

Hi IntlTax,

Thanks for your helpful advice. Let me put some information that I got from my friend who is not paying any tax and working as me in an international organization outside USA. He
Showed me his W2 form for 2007 and it does not show his salary on his w2 form so he files
1040 showing his salary is zero ( or minimal whatever ). Since his w2 form does not show his salary as USA income, he did not pay any tax (FICA) on his salary. I am not expert but
I have one question why his salary is not shown on his w2 from?

I hope this information will be helpful in explaining why he does not pay any though he is on H1B. He is not alone but here there are many people like this.

Regards,

PK

If he has no salary reported in Box 1, but is still getting a W-2, it is probably because he has to file a STATE tax return.

Most states do NOT honor tax treaty provisions that exempts salaries from federal income taxes.