[av578]

Hi!
1) I am in the US for the entire year in 2008. From January 2008 till Sept 2008 I will be earning income on OPT Status. From Oct 2008 till Dec 2008, I will work on H1 B status (about 92 days). Will I have to pay social security and medicare for the 92 days period that I will be on H1 B status? Or, do I have to pay social security and medicare for the entire duration of my stay in the U.S. in 2008 including during the OPT status period?
2) Will I be able to file tax returns from January 2008 till Sept 2008 as 'single' (since this is mandatory for those who are on OPT status), and then for the 92 days H1 B period file returns as 'head of household' or as 'married filing jointly'? Will I be able to claim any deductions/allowances by doing this?
3) What is the maximum amount that can be invested by an individual employee in a 401K plan in 2008? How much tax can one defer by investing in the 401K - is there a cap?

Thank you for your response.

[MukatA]

You have two choices
First: File nonresident tax return for 2008. You will get personal exemption and deduction as per tax treaty (depending upon your citizenship).

Second: Wait for about 5-months in 2009 till you complete SPT in 2009. The file joint return as residents. Read Your U.S. Tax Return: Substantial Presence Test

About 401K: You must think again before putting your money in any retirement account. In 401K if you withdraw money before 59 1/2 you will pay early withdrawal penalty of 10% and the amount is your taxable income. If at the time of withdrawal, you are nonresident, the plan administrator will withhold backup taxes. You may even be required to file your tax return. If you return back to your country, then after you are 59 1/2 how will you manage transfer of funds from the U.S. to your country? And who will inherit it and will that person be able to manage your account.

[AtlantaTaxExpert]

MukatA raises some valid points about the headaches that foreign nationals incur when funding a 401K plan, but if your employer offers a generous match (which is essentially FREE money), it may be worth the headaches noted.