Income Taxes and You
In the United States, every worker, whether self-employed or an employee, must pay income taxes. There are three types: federal, state, and local. Between the three, most people pay between 25 and 35 percent of their salaries in taxes.
The main categories of taxes include:
● Federal Social Security and Medicare tax- (FICA)
Not all areas have a state or local tax. However, you could also be responsible for property tax if you own a car, house, or other large asset, sales tax, transfer tax, capital gains tax, and other types of extras. Most of these smaller taxes, such as sales and gas tax, aren’t included on your income tax return, but federal and state taxes are.
H-1B Worker Federal Income Taxes
When you’re in the US under an H-1B, you’re considered a “nonresident.” With this label, you are taxed on any wages you make while employed in the US at the same rate that US citizens are charged. You get the obligations, but you do not have the right to claim the same deductions.
One way to qualify for deductions is to become a US resident. However, if you do (through a Green Card), you are charged taxes on any income you make globally.
As an H-1B visa holder, your tax rate depends on your income level, as the United States uses progressive marginal brackets to determine tax rates. H-1B visa holders generally receive higher than average salaries, causing them to fall into the 20-35% tax category.
Your filing choices also make a difference in how much you’re taxed. The options are single, married filing jointly, married filing separate, and head of household. Married filing separate individuals are taxed at the same rate as those who file as single.
The city you’re living in could have a local income tax. If so, you’ll see 1-4% of your gross wages taken out of your paycheck by your employer. Verify that the address on your W4 is accurate to ensure you’re paying the correct local tax.
Most states also have a state income tax that ranges somewhere between 0 and 10% of your gross wages. This is also withheld automatically by your employer. States that don’t have personal income taxes include Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming. Tennessee and New Hampshire tax interests and dividends only.
State and federal income taxes are filed during “tax season,” which runs from January to April. You can file an extension and have until October to pay your taxes.
Although you are a nonresident, you are taxed on federal social security and Medicare (called FICA). These are pension and healthcare provisions that are set aside for your retirement purposes. In 2023, the rates are 6.2% for Social Security and 1.45% for Medicare. Your employer matches these contributions.
Will you ever see those social security funds you pay in? That depends on your home country and whether they have a tax treaty with the US that permits you to receive Social Security when you return home.
Maybe you live close to the border, and you live and work in two different states. In that case, you’ll need to file tax returns for both states, but you’ll only pay the higher of the two taxes.
As an alien, you must ensure you know whether you’re filing as a nonresident or a resident. This is determined through a substantial preference test, which is done on a calendar year basis. Your tax preparer or immigration attorney can help you understand which one you should file as.
When you go to the tax preparer (or are ready to file yourself), you will need to gather all the tax forms (W-2, 1099) and your Social Security card. If you have any other forms of income, such as investments, you’ll need those, as well. Once you have all of that documentation, you can move forward with filing your taxes.
If you’re married, but you are both nonresident aliens, this is treated the same as filing single. Your spouse must file as well. Even if you have dependents, as a nonresident, you can’t claim them. However, residents from certain countries, such as Canada, Mexico, and South Korea, may be eligible to claim child tax credits.
When you have tax filing questions, you go to an expert accountant. But when you have questions about your H-1B visa and how to ensure you’re staying within your terms, you go to the immigration law experts at Visa2US. Give us a call or message us today to find out how we can help you get and keep your career in the US on track with an H-1B visa!