Hi,
I was on OPT from 1 July 2004 till Nov 08, 2004. My H1B started from Nov 9, 2004. I started working for my ex-employer from Nov 09, 2004 (the same date as my H1 date). In spite of being on H1B, he did not deduct the SS and Medicare tax and also paid less than normal federal and state tax for the first three months of my work - Nov 2004, Dec 2004 and Jan 2005. He said that I can pay less than normal taxes for the first few months on H1B. I switched employer in Feb 2005 and this new employer has been deducting the right taxes since Feb 2005. For the current tax period my main concern is the tax deduction for Jan 2005.
Now my questions are:
1. What form do I have to fill 1040R or 1040NR?
2. What do I do about the less tax paid for Jan 2005? Do I need to pay additional federal and state taxes now bcoz of my employer's mistake? What about the unpaid Social Security and Medicare taxes?
3. If I don't need to pay the additional taxes how do I fill in these deductions in my tax form?

Thanks a lot in advance for the help.

Cadbury:

1) If you are single or married with no children, then you can probably file Form 1040EZ. With children, probably 1040A. If you have itemized deductions (bought a house and paying a mortgage), then you file Form 1040.

2) Don't worry about the under-withholding of taxes in Jan 2005. You probably made up for it in the later months. As for the non-withholding of Social Security and Medicare taxes, that's your boss's problem, not yours. The employer is responsible for paying both sides (employer and employee) of the taxes and collecting the employee's share from his paycheck.

3) Your deductions are a $3,200 personal exemption and the standard deduction, which, if you are single, is $5,000.

AtlantaTaxExpert,
Thanks a lot for your reply. I highly appriciate it. I have one last question though. What is the 183-day rule? Is it applicable in my case? Like I mentioned before, my H1B was approved on Nov 9, 2004 and my employer paid less federal and state taxes for Nov 2004, Dec 2004 and Jan 2005 since his lawyer said that for the first few months on H1B, the employee need not pay full taxes. Is that valid?
Thanks a lot once again for helping not just me but all the people on this forum. Thanks a bunch.

Cadbury:

The 183-days is the number of days you have to be under H-1B in one year (or multiple years with discounting of the days in the earlier years) to qualify as a resident alien under the Substantial Presence Test. You met that test easily in 2005.

The paying of less taxes early in the H-1B visa period is perfectly valid, and smart money management!

It's nice to be appreciated! :D

AtlantaTaxExpert,
Sorry for the delay in responding. Thanks a lot for your reply but I am still a little confused. I will explain my situation is detail:
I came from India to the USA in Fall 2002 on F1 visa. My OPT started on July 1, 2004 till June 30, 2005. However, my H1B start date was Nov 09, 2004. I got a job in Nov of 2004. My employer at that time deducted less federal and state taxes for the months of Nov 2004, Dec 2004 and Jan 2005 in spite of me being on H1B since Nov 09, 2004. Also he did not deduct any medicare and social security taxes for these 3 months. He told me that his lawyer has informed him that I am exempted from paying these taxes for the first few months on H1B. My main concern is the less taxes paid in Jan 2005 since it falls in the last tax year.
Now my questions are:
1. Is what the laywer said true? Am I really exempted from paying the taxes for the first few months when I shift from F1 to H1b?
2. What is the 183 day rule? Does it apply in my case? If so what are the benefits of the rule in my case? Does the 183-day rule state that a person who has transferred from F1 to H1b need not pay full taxes for the first 183 days of transfer?
3. My employer paid approx. $400 less federal taxes for me in the month of Jan 2005. Will I have to pay those less taxes now when I prepare my taxes OR is there a way I can be exempted from paying those less taxes?
4. What form do I need to fill out? 1040 OR 1040A OR 1040NR?

Thanks a lot for your help in this matter. Continue the help you are rendering to all the members of this forum like me. Thanks.

Cadbury:

1) No, you are not exempt. Your liability for Social Security and Medicare taxes started the day your H-1B visa became effective. That said, the fact that your employer did not withhold the taxes is not your problem. Such withholding is exclusively the responsibility of the employer. The IRS will come talk to the employer, not you, if they notice that the taxes were not paid.

2) The 183 days is the minimum amount of time needed to qualify for the Substantial Presence Test. Yes, it applies to you, as you were under the H-1B visa for at least 183 days in 2005. There may or may not be benefits associated with it.

3) A smaller withholding just means less taxes were paid by you in January. It will not affect your ultimate tax liability, which is determined when you file.

4) Definitely not Form 1040NR, since you must file as a resident alien. More likely, you should file Form 1040EZ. However, if you are single, you have the option to file Forms 1040EZ, 1040A or 1040.