Tax Implications for Immigrants in the US
- Its Ok Yaar
- Jun 28
- 4 min read
There’s a very popular dialogue in the Oscar-winning movie Everything Everywhere All At Once: “In another life, I would have really liked just doing laundry and taxes with you”.
I’m not sure about laundry, but we're absolutely sure that no one don’t wants to do taxes with anyone in any life. In fact, no one wants to do taxes at all. But this isn’t a movie and in the real world, if we make money, we need to pay our taxes.
In this blog post, we will discuss the basics of US taxation for Immigrants in the US.
Filing your taxes can be confusing enough for anyone, but navigating the system as an immigrant with a specific visa type adds another layer of complexity. Don't worry, though, because we're here to break it down for you!
Understanding the Basics of US Taxes
First, let's get some foundational knowledge. In the US, you're considered a resident for tax purposes if you meet any of these criteria:
If you meet the substantial presence test
If you meet the Green Card test
If you are a spouse of a US citizen. Even if you're not a citizen yourself, being married to a US citizen makes you a resident for tax purposes.
Now, the green card test is simple to understand. If you’ve been a permanent resident of the US in the past year, you have to pay your taxes in the US.
The substantial presence test is a little confusing. Why? Let’s look at the definition.
Substantial Presence Test
You satisfy the substantial presence test, and are therefore treated as a resident alien for a calendar year, if you have been physically present in the United States on at least:
31 days during the current year, and
183 days during the 3-year period that includes the current year and the 2 years immediately preceding the current year.
To satisfy the 183-day requirement, count:
All of the days you were present in the current year,
One-third of the days you were present in the first year before the current year, and
One-sixth of the days you were present in the second year before the current year.
Don’t try to get into the calculation. Simply use an online calculator that will help you with it.
Better yet, just speak to a CPA here in the US, and they’ll help you out with everything. Here are links to a couple of these online calculators that can help you.
Another thing to note is that you can only pay taxes in the United States if you have either a Social Security Number (SSN) or an Individual Taxpayer Identification Number (ITIN). People who are authorized to work in the United States by the Department of Homeland Security are eligible to apply for a Social Security number before they arrive in the United States.
So, typically someone on H1B or L1 and L1 may have their SSN but H4 visa holders need to have an ITIN to be able to file their taxes. We’ve created a detailed video about what ITIN is and how to apply for an ITIN.
Now that we’ve understood what is a US resident for tax purposes and the substantial presence test, let’s understand the filing requirements.
Filing Requirements
The type of tax form you need to file depends on your income and residency status. Here are some common ones:
Form 1040: This is the standard form for resident aliens.
Form 1040NR: This is for non-resident aliens.
Form 8832: This is used to claim an exception to being treated as a resident alien.
Now, we will quickly go through different visa types and discuss their tax implication
Visa Types and Tax Implications
H-1B (Specialty Occupations): You're generally considered a non-resident alien for the first year, but after that, you may be considered a resident alien. We suggest you start filing your taxes.
L-1 (Intracompany Transfer): Similar to H-1B visas, L-1 visa holders can be considered non-resident aliens for tax purposes if they meet specific conditions. However, consult with a tax professional to determine your specific tax status.
Green Card Holders: Once you have a green card, you're considered a resident for tax purposes and must report all your income, regardless of where it's earned.
F,M and J visa holders:
All international students and their spouses and dependents, regardless of income, must complete Form 8843, which is informational and lets the IRS know how long you've been in the USA.
Students in the USA on F-1 visas are NOT required to pay employment taxes (i.e. Social Security and Medicare, also known as FICA), but ARE REQUIRED to pay both federal and state income taxes. These taxes are withheld from your pay and you must file a tax return as part of the process. We’ve explained what FICA is and why F1 visa holders don’t have to pay this tax in this video here.
As an F-1 student, you're generally exempt from US income tax on income earned from sources outside the US, like scholarships or grants.
Because M-1 visa holders are not allowed to accept employment (except during practical training), they are NOT required to file income tax unless in rare situations where they're paid for the practical training.
If you are in the USA on a J-1 visa, you DO need to pay income taxes on the income you earn.
Here's an easy way to think about it: By definition, M-1 visa holders don’t pay taxes because they are in the USA only to learn and therefore do not earn any income, F-1 visa holders pay federal and state income taxes, and J-1 visa holders pay taxes just like U.S. citizens.
Seeking Professional Help
Tax laws can be complex, and it's always a good idea to seek professional help from a tax advisor familiar with immigrant taxation. They can help you navigate the specific rules and requirements for your situation and ensure you're filing correctly. Remember, there are exceptions and specific requirements based on your situation. The IRS website (irs.gov) has a wealth of resources and guidance on filing requirements for non-resident aliens.
We hope this blog post was helpful for you to understand the basics of the US taxes for Immigrants. If things aren’t going your way, remember It’s Ok Yaar and they soon will.
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