H-1B Visa Holders Face Complex US Tax Obligations
Foreign professionals in the United States on H-1B visas face a complex mix of federal, state, and local taxes that often mirror the obligations of citizens.
Although the H-1B programme permits holders to live and work in specialised roles, it also places them within a detailed tax system that can be difficult to navigate. Many pay an effective rate of 25 to 35 percent, but the greater challenge is understanding whether they are treated as tax residents or non-residents.
This classification depends on the Substantial Presence Test, which counts days spent in the United States over a three-year period. Individuals who meet the 183-day threshold in a calendar year are considered tax residents and are taxed on worldwide income.
Those who fall short are treated as non-residents and are taxed only on income earned in the United States, but they have access to fewer deductions, which can increase their overall tax burden. The rule can hinge on very small differences.
An H-1B worker arriving in early July and staying through the end of the year qualifies as a resident only if they enter the country on or before 2 July. Arriving on 3 July leaves them below the threshold.
Beyond income tax, H-1B holders encounter additional levies, including property, sales, capital gains, and lodging taxes. These obligations expand further for those who later obtain permanent residency, as worldwide income becomes fully taxable.
Immigration status and tax residency are determined under separate legal frameworks, which can lead to uncertainty for new arrivals. Double taxation presents another challenge. Some H-1B workers remain tax residents in their home countries, creating overlapping claims on income.
Tax treaties between the United States and other nations provide mechanisms, including “tie-breaker” rules, to determine a single country of residence for treaty purposes. These provisions can reduce double taxation but often require careful interpretation, particularly for individuals with income or assets in multiple jurisdictions.
