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H1B Taxes & Other Details
April 21, 2022
4 mins
A businessman fills out his income tax online using his laptop and calculator. Several tax-related icons are displayed horizontally.

This blog discusses the following :

  • Types of Federal taxes
  • Steps to file H1B taxes
  • Documents required for filing H1B taxes
  • How to file H1B tax returns

The H1B visa is a highly valued non-immigrant visa that allows foreign workers with specialized expertise to work for US-based employers for a total period of 6 years. The main criterion for applying for an H1-B visa is finding an employer willing to sponsor your visa. To apply, you also require a bachelor's or master's degree, specialized skill sets, or an equivalent work experience in areas such as:

  • Medicine
  • Engineering
  • Law
  • Architecture
  • Finance
  • Accounting
  • Information Technology
  • Mathematics

As an H1B visa holder, you must also pay taxes that amount to 30% to 35% of your income. Let's explore the H1B taxes in detail. But before that we recommend you to read about How H1B Taxes Works for H1B Visa Holders for more clarity on this topic.

What are H1B Taxes & Their Types?

Unlike the normal federal and state taxes, H1B taxes do not come with the same tax deductions that a permanent citizen can claim. As an H1B taxpayer, you may have to pay nearly 20%-40% of your income as state, local, and federal taxes. As a nonresident H1B holder, you are subject to taxation based on marginal brackets that vary according to your income and appropriate deductions. The taxes are of four types:

1. Federal Income Tax
This H1B tax return percentage amounts from 10% to 39.5% of your salary. To pay this tax, you must file Form 1040NR-EZ and pay nonresident income tax.

2. Medicare and Social Security (FICA)
The FICA tax amounts to nearly 8% of your income. Of the 8%, 1.45% is paid for Medicare, and 6.2% is for Social Security. Your H1B employer will also pay the same amount to the IRS on your behalf to secure provisions for pension funds.

3. State Income Tax
Nearly 0%-10% of your income will go as State taxes, depending on your state. For example, if you live in California, paying 7% of your income as taxes is mandatory. However, states like Nevada, Texas, and Washington do not levy additional income taxes.

4. Local Income Tax
Apart from the States, some towns and cities may levy upto 4% additional income taxes.
So, how do you file your H1B taxes? There is always a process to follow when it comes to filing taxes. Let's see what it is.

Also Read: A Comprehensive Guide on Tax Filing for H1B Visa Holders

How to File Your H1B Taxes: The Process

There are three essential steps to filing your H1B taxes.

1. Determining your residency status

Foreign taxpayers are divided into resident and nonresident aliens. Nonresident aliens are only taxed on income derived from US sources, while resident aliens are taxed in the same way as US citizens on their worldwide income.
You must determine your residency status based on the substantial presence test for tax purposes. The test is applied on a year-by-year basis.

2. Collecting your tax documentation

To pay your taxes, you will have to gather crucial documents like:

  • Social Security card
  • Tax forms 1099 series
  • Tax forms like W-2
  • Investment income statement

Residents from Canada, Mexico, and South Korea and students or business apprentices from India can claim additional credits like child benefits. To claim residents' tax deductions, you must have the following receipts:

  • Child care
  • Educational cost
  • Other applicable costs

Other documents required for filing H1B taxes

Apart from the above-mentioned documents, it is wise to have the following list of documents handy to file your taxes without any delay. You will need:

  • Photo IDs
  • Social Security number
  • Wage documents and earning statements from all employers in the past financial year
  • All deduction receipts
  • Documents related to name changes, relocation, and dependency after marriage.

3. Filing your taxes

When you have gathered all the documents, you can go ahead and file your taxes.

H1B Tax Exemptions & Deductions: What H1B Holders can Claim

An H1B visa holder can generally claim any tax credit or benefit that a permanent resident can claim. However, there is no guarantee that they will receive the benefits. Some tax deductions are based on your filing status. For example, if you and your H4 dependent spouse file jointly as a married couple, you are entitled to greater deductions than filing separately or individually.

Moreover, to claim the same itemized deductions as any other citizen, you must file Schedule A in Form 1040. Using this Form, you can apply for H1B tax deductions like:

  • State and local taxations
  • Real estate taxes
  • Medical and dental expenses
  • Interest incurred through mortgage
  • Loss incurred through theft

Please note that you have to itemize the H1B tax deductions, or you may not be entitled to claim them when the time comes. Also, these deductions will be calculated according to your filing status.

Tax benefits for children

You can receive a child tax credit, dependant care credit, and adoption care credit for each qualifying child. The credit amounts vary from year to year.

How to File H1B Tax for H4 Family Members

To file tax returns for H4 holders in your family, you can download the Form from the IRS website, fill them and send them back to the IRS for further processing. However, it is advisable to get help from certified and experienced accountants to fill out these forms.

What happens if you live in one state and work in another?

If you live in one state and work in the other, you may not have to pay double taxes. However, you must file tax returns in both states. You will usually pay the higher of the two state's taxes if your state has a reciprocity agreement with an adjacent state. You can hire a tax advisor to help you with complicated multi-state tax returns and ensure you do not double pay. Also, in case you are moving, you must update your address on the W4 Form.

Conclusion

H1B taxes can seem a little confusing and overwhelming, especially if you are filing your H1B taxes for the first time. There are many resources that can help you. You can use the IRS website, your local library, or seek the help of volunteer organizations.

Be Informed With TechFetch H1B

Reach out to the TechFetch H1B platform to understand your H1B taxes and to get acquainted with all relevant info.

**Disclaimer: All H1B visa processes are subject to change. Kindly refer to the USCIS official website for the latest information and updates.

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