Tax Tips for H1B Visa Holders
December 24, 2013 Leave a comment
If you are on H1B in the U.S., here are a few simple, yet important, tax tips that you should consider:
- As most of us know, tax return preparation starts with basic document called “Form W-2”. W2 is a document that details your payroll for the year and the taxes withheld from that payroll. At the end of the year, be sure to obtain your W2 from your employer. If you worked for different employers during the year, get a W2 from all of them because you are most likely to get an IRS notice for not reporting W2 income on your tax returns. There are other different forms of interest from the payer of income depending on income type like form 1099 for interest income from U.S. banks, 1099-B for stock sales etc. Be sure to gather these documents at one place so when you have to file the taxes, you have them all handy.
- If you worked for multiple employers in different states during the tax year, then you need to file state income tax returns in all those states in addition to the federal return in form 1040/1040NR as the case may be, depending on your residential status. Most of the times, you get refund of the state taxes withheld from your payroll by merely filing the state income tax returns.
- If you are on H1B visa and a resident of U.S. as per the U.S. tax laws, which most of the people are, then you generally are subject to U.S. Income taxes on your worldwide income. This includes, but is not limited to, any interest income from bank accounts in a foreign country, income from rental property, and dividend income.
- One very important and often overlooked provision applicable to U.S. tax residents is that if they have financial interest in or possess signature authority over a foreign financial account, including a bank account, brokerage account, mutual fund, trust or other type of financial account, he/she is required to file Form TD F 90-22.1 with the IRS by June 30 each year if aggregate value of the financial account(s) exceeds $10,000 at any time during the year. Remember, there is no extension to file this form and penalty for noncompliance is $10,000 per year.
- If you had some income in a foreign country and there were some taxes withheld in foreign country on that income, then you could claim the credit of those taxes paid on your U.S. tax returns.
- The spouse of a person on H1B visa can be treated as resident for tax purposes by filing a declaration along with the tax returns even though he/she might not admitted to the United States. The advantage of doing so is that you are able to claim additional spousal exemption on the tax returns which directly could result in tax savings.
- Dependents of U.S. resident, despite not being admitted to the United States, can be claimed as dependents on U.S. tax returns if the rules that apply to U.S. citizens are met. There are specific rules for qualifying child/qualifying relative for claiming as a dependent.
- For the purposes of claiming the exemption for spouse or dependents, ITIN (income tax identification number) needs to be applied along with the tax return. This can be done by filing a simple form “Form W-7” along with the tax returns.
- If for half of the year you were on OPT and half of the year on H1B, then there should not be any withholding for social security and medicare out of your payroll for the period you were on OPT. If your employer has withheld money for these, you can ask refund for withholding of social security and medicare for the OPT period. The exemption from social security and medicare taxes for services performed in U.S. is available as long as such services are allowed by the USCIS, and are performed to carry out the purposes for which the student visa was issued.
- An important possible tax deduction could be moving expenses for people who came to U.S. during the year from a foreign country or moved from one U.S. location to another during the year for employment. You may be able to deduct moving expenses on your tax returns if you meet a specified distance and time test. You can deduct the cost of packing, crating, and transporting your household goods and personal effects and those of the members of your household from your former home to your new home. For the purposes of moving expenses, the term “personal effects” includes, but is not limited to, movable personal property that the taxpayer owns and frequently uses.
- Few things that you could consider to save or defer your taxes.
- Make investments in retirement accounts to defer the taxes like 401K, traditional IRA.
- If you invest in security, plan to hold it for at least one year to make the gain/loss long term which is tax favorable.
- Consider buying a home because you could deduct mortgage interest deduction, & real estate tax deduction. If you already have home, pay your mortgage payment of next year’s first month early. (E.g. instead of 1 Jan, pay 31st Dec). This way you can get deduction in current year. Also pay real estate taxes early.
- Be generous, donate your clothing and household items to charity.
- If your employer has flexible spending account benefits for any medical or dental or dependent care cost, consider using that.
- You can deduct Medical expenses only if it exceeds 7.5% of your adjusted gross income (AGI). So keep track of your dental and medical expenses from start of the year to get this deduction.