Hello,

I have just obtained my first H1B visa, I am from France, research engineer, and I am not sure of my position regarding tax exemption.
Can I benefit from tax exemption under this new status ?

Thank you very much,

Alex

For sure, you are liable for taxes on the income earned while in the U.S. under the H-1B visa.

HOW you file depends on a number of factrs, such as WHEN you arrived and whether you are married or not. If you provide that information, I can be specific in my guidance.

Thank you very much for your answer. The very first time I came to the US was on May 25, 2010 under a J1 student visa. Now, I came again under my first and new H1B which started on October 1st, 2011 and which is valid for 3 years. I am not married, and I am engineer (not working for a university or any educational institution).

Yours sincerely,

Alex

For 2011, you will NOT have met the 183-day Substantial Presence Test, so you will file as a non-resident alien, filing Form 1040NR or 1040NR-EZ.

You are also liable for FICA (Social Security @ 6.2% and Medicare @ 1.45%) taxes, which are collected at a flat rate noted above. For 2011, the SS tax was reduced to 4.2%.

If you need professional help filing your 2011 tax return, email me at [email protected].

So that means that for the first 183 days of my H1b, and only during those days, I am exempted from state, local and federal taxes, is that right ? Am I exempted from SS and Medicare too during that time ? I know my paycheck includes all of those but I do not really know if I must pay them or not...

Again, thank you very much for your answer !

Alex

No, you are liable for FICA (Social Security and Medicare) taxes from the first day your H-1B visa is in effect.

Further, you ARE liable for federal, state and local income taxes from the day you start working. The fact that you did not meet the Substantial Presence Test means you will not be a;llowed to file as a resident for 2011, and will probably pay somewhat more in federal (and possibly state) income taxes.

So it will finally turn out that I will have to pay even more taxes than if I was a regular US citizen, meaning that I will pay even more than what is already taken from my paycheck?

Also, I have worked for 3 months (june to September 2011) as a J1 student in Academic Training (US university J1 visa allowing me to work in a company as long as it's related to my studies), at the same company, just before obtaining the H1b, can I be exempted from the taxes I paid during those 3 months under my J1 ?

Anyway, thank you very much for your answers, it's more clear now !

J-1 visa holders who are students or business apprentices/trainees are NOT exempt from income taxes; they just file as non-resident aliens. So you will file Form 1040NR and report BOTH the income earned while under the J-1 visa AND the income earned while under the H-1B visa.

You will NOT be allowed to claim the standard deduction. However, students from France are authorized a $5,000 treaty exemption, so the first $5,000 of your combined income is exempt from federal income taxes; the state income tax may or may NOT honor that exemption as well; it depends on the state.

You can also claim your personal exemption and itemize to claim the state income taxes withheld from your pay, so it is likely you will pay LESS taxes than a U.S. citizen in the same job.

During your J-1 visa time, you were EXEMPT from FICA (Social Security and Medicare) taxes.

If you need professional help filing your tax return for 2011, email me at [email protected].

When you say "You can also claim your personal exemption and itemize to claim the state income taxes withheld from your pay", what does personal exemption means ? It sounds like I should do it if it can exempt me from state taxes when I was J1, how does this work ?

I am in California, I will check about the state income tax.

Thank you very much

You will NOT be exempt from taxes for California, nor will they honor the treaty exemption, because California does NOT recognize ANY tax treaty with another country as applicable to their state income tax. However, on the California state return, you CAN claim the standard deduction.

Everyone who files, be they resident or non-resident, gets a personal exemption of $3,650.

Thanks ! So tu summup about my situation,

J1 period: I am in the position to claim the federal exemption for the first $5,000 under my J1, but not the state exemption because I was in California. I was also exempted from SS and Medicare taxes.

H1b period: no exemption by any treaty, but an exemption of $3,650. Added to that, I can also claim the standard deduction. In my case, what does the standard deduction correspond to ?

Not quite.

You CANNOT claim the standard deduction. The $5,000 exemption for the J-1 period carries over to the H-1B period as well.

Example:

You earned $10,000 on the J-1, and $15,000 on the H-1B. Your total income is $25,000. California withheld $850 for state income taxes.

Subtract $5,000 for the treaty exemption, $3,650 for your personal exemption, and $850 as an itemized deduction for the California state income taxes withheld, so your taxable income is $15,500.

Thank you very much for your help ! I am very happy this tax issue is figured out.

Now, when should I fill the 1040NR ? In January ?

I will keep your email address and probably contact you when it's time to do it,

Yours sincerely,

Alex

Hello and happy new year !

So when should I do my taxes and fill in the 1040NR ? Can I do it now and expect to have a quick tax refund ?

The tax submission date (the date on which the IRS will begin accepting 2011 tax returns) has NOT YET been announced. I expect it to be 17 January 2011.

If you submit BEFORE that date, the IRS will either HOLD the return until the submission date arrives OR reject the return.

In either case, it is just better to wait.

Thank you! Another question: in my situation, should I complete the Form W-4 in a particular way ?

Yes.

You should claim SINGLE status with ONE allowance. This is an IRS requirement.

Thanks for that answer! Just for my information, why one ? I wouldn't be able to get those exemptions if I had two or more allowances ?

Because the IRS wants to make sure enough money is withheld to cover your tax obligations.