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If you are a foreigner and a skilled professional living and working in the United States, you should be an H1-B visa holder. As an H1B employee, you probably wonder how much you have to pay while working in the US and how the US tax system works. As long as your taxes are concerned, you may be taxed differently depending on your residency status. You must pay taxes for your income as an H1B employee under a US-based H1B employer.
To ensure that all H1B workers earn fair wages on par with their US colleagues, the US Department of Labor has determined the H1B minimum salary levels. These levels also ensure that the employer pays the deserving wages as per the H1B holder's skills and work experience.
The H1B wage requirement is based on the OES or Occupational Employment Statistics Program data. The data is based on the location, experience, job title, Collective Bargaining Agreement (CBA), or the collective union contract. The CBA is a written contract between employers and the worker's union, stating the various wages for different jobs and positions.
Generally, all H1B workers must pay federal, state, and local taxes between 20% to 40% of their income. Let's take an up-close look at the various taxes and tax rates for H1B holders.
Before learning about the taxes, we also recommend you spend a little time understanding all about H1B Visa.
H1B tax status differ according to the wage levels, and H1B workers may pay between 25% - and 28% on taxable income. Depending on your residency status, you will be taxed in four different ways:
While staying in the US, you may also incur several other taxes like:
Here are the details of the four main taxes you will be paying as an H1B holder:
If you are working in the USA on an H1B visa as a non-resident, you will have to pay taxes for what you earn in the US at the same rate as the other US citizens. In fact, all US citizens, permanent residents, non-resident aliens, and resident aliens must pay Federal Income taxes for what they earn while residing in the US. This includes all H1B workers who do not pass the Substantial Presence Test. However, if you pass the Substantial Presence Test and you are considered a resident alien, you may have to pay federal income taxes for your worldwide income. Your income level determines your tax rate, which ranges from 10% to 39.6%.
Kindly refer to the Federal Income Chart for 2022:
2022 Federal income tax brackets
|Tax rate||Single||Married, filing jointly||Married, filing separately||Head of household|
|10%||$0 to $10,275||$0 to $20,550||$0 to $10,275||$0 to $14,200|
|12%||$10,276 to $41,775||$20,551 to $83,550||$10,276 to $41,775||$14,201 to $54,200|
|22%||$41,776 to $89,075||$83,551 to $178,150||$41,776 to $89,075||$54,201 to $86,350|
|24%||$89,076 to $170,050||$178,151 to $340,100||$89,076 to $170,050||$86,351 to $164,900|
|32%||$170,051 to $215,950||$340,101 to $431,900||$170,051 to $215,950||$164,901 to $209,400|
|35%||$215,951 to $539,900||$431,901 to $647,850||$215,951 to $323,925||$209,401 to $523,600|
|37%||$539,901 or more||$628,301 or more||$323,926 or more||$523,601 or more|
According to the US tax system, different portions of your income are taxed at different rates depending on your marginal bracket. It works like a step function. If your annual income is $49,000 and you are single, the first $9,325 will be taxable at 10%. Tax on income between $9,326 and $38,700 is 12%. The remaining amount of your income (the amount over $38,700 up to $49,000) will be taxed at 22%. H1B visa holders typically pay between 20-35% of their income in taxes.
Some cities in the US levy between 1%-4% of taxes on your gross income. Although your employer withholds this amount, you must file a local income tax return when the tax season comes. You must also ensure that the address on your W4 is correct, or else you may run the risk of paying the wrong local tax.
If you are living in one state and working in the other, please ensure to give your correct home address on the W4 Form. You must also update it when you relocate to another place. You will have to file your tax returns in both states, even if you don't have to pay double taxes. Several states have reciprocity agreements with their neighboring states, so you generally pay the higher tax of the two states.
Your H1B state income tax depends entirely on the state you work in, and your employer withholds the tax. You can expect 0%-10% of your gross income with some exceptions. State income tax is collected from both US citizens and non-citizens. You do not have to pay any personal income tax if you live in the following states:
If you live in New Hampshire or Tennessee, you will have to pay taxes for dividends and interests at the tax level. The tax season falls from January to April, during which you can file your state income tax return. If you file an extension, you can change the due date to October.
The FICA taxes are pension and healthcare provisions for retirement. This tax includes:
Both you and your employer contribute to Social Security and Medicare taxes. Together, you and your employer pay 12.4% for social security and 2.9% for Medicare. In some cases, you may be able to receive Social Security benefits after you leave the US, depending on the tax treaty the US has with your country of residence.
Your employer will pay the following taxes on your behalf to the IRS:
If you are self-employed, you must pay what the employer will pay on your behalf and the individual taxes. However, this rule does not apply to H1B workers who are not self-employed.
The H1B tax rate depends on the state and your income level. If you are an H1B worker, you will pay 20% to 40% of your gross income in total taxes. Your tax will be high if your income and state taxes are high.
**Disclaimer: All H1B visa processes are subject to change. Kindly refer to the USCIS official website for the latest updates.