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lalji · Jul 18, 2012, 02:16 PM

Atlanta tax expert,

I am on H1 visa and am filing jointly with my spouse. We just had a new born baby. My wife does not work and our joint income is below $90,000. I filled W4 form and am arriving at 6 deductions. I wanted to confirm if this is correct. Should I get 6 deductions? Please advise. Thanks.

AtlantaTaxExpert · Jul 18, 2012, 02:46 PM

No, that is NOT correct.

Even though the W-4 calculations result in SIX allowances, IRS rules restrict foreign nationals working in the U.S. to NO MORE than TWO allowances if you are MARRIED, or ONE allowance if you are SINGLE. No extra allowances are allowed for your children.

This is done to ensure that enough taxes are withheld from your salary to cover any potential tax liability resulting from your world-wide income. Note that, if you file as a resident alien, ALL world-wide income is subject to U.S. income taxes.

Prior to the issuance of these guidelines, there had been multiple cases where foreign nationals worked several years without having ANY income taxes withheld from their salaries, because they claimed multiple allowances on their W-4. They then failed to file income taxes. Given the built-in delays associated with tax filing compliance, it was possible to such workers to work as many as FOUR years without ever filing a tax return. They then returned to their home country, having NEVER paid federal or state income taxes nor filing any tax return. If they lived in a country that had NO tax treaty with the United States, the IRS and the state were then powerless to collect the past-due taxes,

In your case, you should claim MARRIED with TWO allowances to be in line with IRS guidelines in this matter, even though it makes more sense from a money-management point of view to claim six allowances and write a small check (or get a small refund) when you file your 2012 tax return.

lalji · Jul 18, 2012, 03:33 PM

Thanks for your reply.I am from India and I believe India has a tax treaty with the US.

AtlantaTaxExpert · Jul 18, 2012, 04:00 PM

Yes, it does, and if you tried what others have done in the past, the IRS would track you down and, through the Indian government, collect the back taxes.

It is unfortunate that the actions of a few results in current H-1B workers being REQUIRED to over-withhold, but those ARE the rules.

lalji · Aug 6, 2012, 02:47 PM

Where can I see this rule that H1B visa holders who are resident for tax purposes can claim only two exemptions? IRS website, guidelines.. I would like to take a look at the rule myself to be sure. Please advise.

AtlantaTaxExpert · Aug 6, 2012, 03:13 PM

I believe you can find it in the IRS circular that governs withholding.

lalji · Aug 7, 2012, 11:42 AM

The below link says that since I am resident for tax purposes I can claim exemption for dependents.

Taxation of Resident Aliens

AtlantaTaxExpert · Aug 7, 2012, 01:07 PM

That is for filing your TAX RETURN; it is NOT for the withholding specified on the Form W-4.

lalji · Aug 7, 2012, 01:22 PM

Can you send me the IRS circular which limits the no of exemptions to two?

lalji · Aug 7, 2012, 02:28 PM

The below link says that for withholding purposes treat resident aliens(for tax purposes) the same as US citizens

Aliens Employed in the U.S.

AtlantaTaxExpert · Aug 7, 2012, 04:46 PM

I was not aware of the policy change that allows resident aliens to be treated as U.S.

Long overdue.

Must have changed when the link was updated last December.

lalji · Aug 7, 2012, 05:32 PM

So based on the facts above can I claim five exemptions on my W4?

lalji · Aug 8, 2012, 11:39 AM

Did you mean to say rules have changed and I can claim 5 exemptions?

lalji · Aug 9, 2012, 05:55 AM

Please advise.

AtlantaTaxExpert · Aug 9, 2012, 08:30 AM

Yes, you CAN claim five exemptions.

sandhya1986 · Jan 15, 2013, 02:49 PM

Hi I'm Sandhya,
My husband and I are Indians. WEa re on H1b visa. We got married in June 2012. We currently claim 1 allowance "married." Is that correct? Are we eligible to file under "married status?" Please let me know if it legal or whether the "married status" is applicable only to US green card holders and citizens!
Thanks,
Sandhya

AtlantaTaxExpert · Jan 15, 2013, 10:44 PM

Sandhya,

If you are BOTH working, the one with the HIGHER salary should claim MARRIED with ONE allowance, while the other should claim SINGLE with ZERO allowance.

The reason is that the lower salaried spouse is paying the tax rate on the FIRST dollar earned at the tax rate of the other spouse's LAST dollar earned (probably 15%). That means the lower salaried spouse will probably pay about 20% of his/her salary in income tax, and must OVER-withhold to compensate.