U.S. Tax Guide for Tech Workers on H-1B and O-1 Visas
Taxes work differently depending on your visa, H-1B is employer-handled, while O-1 often puts the responsibility on you.
Immigrating to a new country can be intimidating, new culture, new customs, and an entirely new rulebook to figure out. For tech workers immigrating to the U.S. on H-1B or O-1 visas, the adjustment is not just in regard to getting used to life in a new city or office; it is also having to deal with one of the most complicated systems in the world, U.S. tax.
From figuring out what percentage of your income is taxable, to untangling deductions, double taxation treaties, and how your visa status affects your filing, the process can quickly turn confusing.
And unlike acclimatising to a new apartment or figuring out the best coffee spots near the office, tax mistakes can have long-lasting consequences, both financially and legally. So getting a comprehensive guide penned precisely for H-1B and O-1 holders isn't just helpful, it's essential.
Determine Your Tax Residency Status
The first point to grasp is whether you're considered a resident or non-resident for tax. The majority of H-1B and O-1 visa holders assume that because they're not permanent residents, they're exempt from paying U.S. tax in the same manner as citizens.
In reality, the IRS uses a so-called "substantial presence test" to make this decision. If you're in the U.S. for over 183 days in a tax year, you'll likely be classed as a resident for tax purposes, meaning you'll be taxed on worldwide income. If you've just arrived, you might still be eligible as a non-resident, in which case you're only taxed on U.S.-sourced income.
Example: Suppose you enter the U.S. in August on an H-1B visa. You'll probably be a non-resident for the year, in which case you'll only be taxed on income earned from the date you started working in the U.S. Next year, however, you'll probably be a resident, in which case you'll need to report income earned anywhere in the world.
Know Which Forms You'll File
After you've determined your residency status, the next thing is actually filing your return. Most H-1B and O-1 visa holders will file Form 1040 if they're residents and Form 1040NR if they're non-residents. The filing deadlines are the same as for U.S. citizens: April 15th, unless you file for an extension.
Example: You were working from India remotely and received payment from a U.S. tech company prior to the approval of your visa. Once you move to the U.S., you'll need to separate that foreign income from your U.S. income when you file since the IRS may not tax the amount you earned before your arrival.
Know How Your Visa Status Impacts Taxes
Your visa status directly influences how your taxes are handled. On an H-1B, you're taxed like a normal employee, your employer will withhold income tax, Social Security, and Medicare directly from your pay.
O-1 recipients, on the other hand, tend to be paid on a per-project basis. Taxes may not, therefore, be withheld automatically, so you'll want to put money aside and make quarterly estimated tax payments. The good news is that O-1 contractors can usually deduct business expenses such as travel, software, or a home office.
Example: An O-1 product designer who does short-term work for various companies might have income that's reported on 1099-NEC, meaning they're on the hook for self-employment taxes. An H-1B developer at Google, however, will just receive a W-2.
Watch out for Double Taxation
One of the biggest concerns for visa holders is being double taxed, both in the U.S. and also in their home nation. Fortunately, the U.S. has tax agreements with most countries to avoid this. These agreements specify how particular types of income, such as dividends or royalties, are to be taxed.
Example: If you're Indian on an H-1B visa and you still have a bank account in India that earns interest, the U.S.-India tax treaty can help prevent or minimize double taxation on that income. To take advantage of this, you might need to file additional forms, such as Form 8833.
Track Your Deductions and Credits
Don't leave money on the table. Certain deductions and credits are available based on your residency status. The U.S. tax system lets you lower your taxable income using deductions, but not all deductions are valid for non-citizens. One popular one that tech workers can take advantage of is the student loan interest deduction, if you went to school in the U.S. and still have loans to pay off.
There are also credits such as the Child Tax Credit if you've relocated with children. Say you have two kids with you in the U.S., those credits can really lower your tax bill. But eligibility rules are strict, so make sure to check if you're eligible before you claim them.
Example: If you're in the U.S. on an O-1 visa and earning $150,000, but you're also paying back $5,000 in student loans for your master's degree abroad. That $5,000 can cut down the income you're taxed on, which will save you money at tax time.
Handle State Taxes Separately
Then there are state taxes, which can come as a shock to those who are new to the country. Not all U.S. states handle income in the same manner. You'll be hit with one of the highest state income taxes if you find work in California, whereas Texas does not tax incomes. Two individuals with the same salary but from different home states may take home vastly different figures after taxes. So, if you're moving for a job, including state taxes can significantly change your actual take-home figure.
Example: An engineer on an O-1 visa in New York pays both federal and state income tax. If the same individual relocated to Texas, they'd only have to handle federal, Texas doesn't have a state income tax.
Keep Records and File on Time
And finally, don't forget about the deadlines. U.S. taxes are typically due on April 15, but as a visa holder, you might be eligible for an extension if you're out of the country on that date. Forgetting deadlines will lead to penalties and interest, and the IRS isn't forgiving when it comes to late payments.
Many tech workers new to the system underestimate the time it takes to receive the right documents, like W-2s from employers or 1099s from side projects, and then end up scrambling at the last minute.
Example: An H-1B tech worker who had a job change during the year may have two W-2s. Omitting one would trigger an IRS notice months later.
Final Thoughts
Filing U.S. taxes as an H-1B or O-1 visa holder may seem daunting, but take it one step at a time, and it's doable. The most important thing is understanding your residency status, filling out the correct forms, and determining if you benefit from a tax treaty. With some preparation (and perhaps a tax expert for year one), you'll sidestep expensive errors and be able to concentrate on why you came, to pursue your tech career.
David Adubiina
