US Taxation of Different Visa Holders in 2024
The United States attracts people worldwide for various reasons, including work, education, and family reunification. If you are one of these individuals, it is essential to understand the US tax system and how it applies to different visa holders. US taxation can be complex, and your visa type can significantly impact your tax obligations.
Resident vs. Nonresident Status
The first step in understanding your tax obligations is determining your tax residency status. This status is not directly related to your visa type, but to the amount of time you spend in the US during a calendar year.
- Resident Aliens: If you meet the substantial presence test, which is generally being physically present in the US for at least 183 days in a three-year period (including the current year and the two preceding years), you are considered a resident alien for tax purposes. Resident aliens are subject to taxation on their worldwide income.
- Nonresident Aliens: You’re considered a nonresident alien if you don’t meet the substantial presence test. Nonresident aliens are only taxed on their US-source income.
Taxation of Nonresident Aliens
- Taxable Income: Nonresident aliens are generally only taxed on income that is effectively connected with a US trade or business and certain other US source income. This typically includes wages earned in the US, income from US investments, and other income related to US activities.
- Exemptions and Deductions: Nonresident aliens do not receive the same standard deduction as US citizens or resident aliens. Additionally, they are not eligible for certain tax credits, such as the Earned Income Tax Credit.
- Form 1040-NR: Nonresident aliens must generally file a Form 1040-NR (US Nonresident Alien Income Tax Return) instead of the standard Form 1040 used by US citizens and resident aliens.
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- Social Security and Medicare Taxes: Nonresident aliens are usually exempt from paying Social Security and Medicare taxes on wages earned in the US under most visa categories.
- Tax Treaties: Some countries have tax treaties with the US that may affect the tax treatment of certain types of income. These treaties can sometimes provide exemptions or reduced tax rates for residents of those countries.
- State Taxes: State tax laws vary, and some states may have different rules regarding the taxation of nonresident aliens. It’s important to be aware of the tax regulations in the specific state where you reside.
- Tax Filing Deadline: The regular tax filing deadline in the US is April 15th, but this date may be extended in certain years. Nonresident aliens can typically file their taxes by this deadline. The deadline to submit your 2023 US tax return is on April 15, 2024.
Different US Visa Categories and Tax Implications
The F-1 visa is a non-immigrant visa that allows foreign students to study in the United States at accredited academic institutions. Here are some key points about the F-1 visa:
- Purpose: The primary purpose of an F-1 visa is to pursue a full-time academic program in the United States. This can be at the elementary, middle school, high school, college, university, conservatory, or language training program level.
- Eligibility: To be eligible for an F-1 visa, you must have been accepted by an approved educational institution in the US. You must demonstrate sufficient funds to cover your tuition and living expenses while studying in the US. You must maintain a residence in your home country that you have no intention of giving up.
- Duration of Stay: The F-1 visa allows you to stay in the US for the duration of your academic program. You are typically granted a period of stay known as “duration of status” (D/S), which means you can stay as long as you maintain your status as a full-time student.
- Employment: F-1 visa holders are generally allowed to work on-campus for up to 20 hours per week during the academic year and full-time during school breaks. Off-campus employment is generally not allowed without specific authorization, which can be granted under certain circumstances.
- Taxation of F-1 Visa Holders: As an F-1 visa holder, you are generally considered a non-resident alien for tax purposes unless you meet the substantial presence test. This means you are not taxed on your worldwide income but only on income effectively connected with the US. Income from assistantships or on-campus employment is typically exempt from Social Security and Medicare taxes but may still be subject to federal income tax. Generally, scholarships and grants used for tuition, fees, books, and required supplies are not taxable. However, amounts used for room, board, and non-mandatory supplies may be taxable.
The B-1/B-2 Visitor Visa is for individuals who wish to temporarily visit the US for either business (B-1) or tourism, medical treatment, or visits with friends and relatives (B-2). The B-1/B-2 visa is typically issued as a combined B-1/B-2 visa. This means you can engage in both business and tourist activities during a single trip to the US.
Here are some key points about the B-1/B-2 Visitor Visa:
- Eligibility: To be eligible for a B-1/B-2 visa, you must demonstrate strong ties to your home country, such as family, employment, property, or other significant connections, to show that you have no intention of immigrating to the US.
- Duration of Stay: The initial period of stay for B-1/B-2 visa holders is usually six months. Extensions may be possible, but they must be requested before the expiration of the authorized period. B-1/B-2 visa holders are usually allowed to enter and exit the US multiple times during the validity period of their visa.
- Employment and Study: B-1 visa holders are not allowed to engage in gainful employment in the US. Their activities must be related to business purposes, and they cannot receive a salary from the US. source. In most cases, B-2 visa holders are strictly prohibited from engaging in any form of employment, including volunteering. Limited study may be allowed but cannot lead to a degree.
- Taxation of B-1/B-2 visa holders: B-1/B-2 visa holders in the United States are considered non-resident aliens for tax purposes, similar to F-1 visa holders.
The J-1 visa is for individuals participating in approved exchange visitor programs in the United States. These programs promote cultural exchange, education, and international cooperation. Here are some key points about the J-1 visa:
- Purpose: The J-1 visa is intended for individuals participating in various exchange programs, including students, scholars, researchers, teachers, au pairs, and more.
- Eligibility: Eligibility for a J-1 visa depends on the specific exchange program and its requirements. There must be an approved exchange program to sponsor participants.
- Duration of Stay: The duration of stay for J-1 visa holders varies depending on the specific program. It can range from a few weeks to several years.
- Employment: Employment opportunities for J-1 visa holders vary depending on the specific program and the terms set by their sponsors. Some programs allow for limited work, while others may not.
- Two-Year Home Residency Requirement: Some J-1 visa holders may be subject to the Two-Year Home Residency Requirement, which mandates that they return to their home country for at least two years before applying for certain US visas or permanent residency.
- Dependents: J-2 visas are for the dependents (spouse and children under 21) of J-1 visa holders. They are allowed to accompany the J-1 visa holder to the US.
- Taxation of J-1 Visa Holders: J-1 visa holders are initially considered non-resident aliens for tax purposes. However, depending on the length of their stay and certain other criteria, they may be classified as resident aliens, affecting their tax liability.
The H-1B visa is a non-immigrant visa category in the United States, allowing US employers to employ foreign workers in specialty occupations temporarily. Here are some key points about the H-1B visa:
- Purpose: The H-1B visa is designed for employers seeking to hire foreign professionals in occupations that require specialized knowledge, typically in fields such as technology, engineering, mathematics, and medicine.
- Eligibility: To be eligible for an H-1B visa, a foreign worker must have a job offer from a US employer for a position that qualifies as a specialty occupation. The worker’s qualifications must meet the specific requirements for the position.
- Duration of Stay: H-1B visa holders are initially granted a stay of up to three years. Nonetheless, extensions are possible, with a maximum stay of six years in most cases.
- Employer Sponsorship: The employer sponsoring the H-1B visa must submit a Labor Condition Application (LCA) to the Department of Labor (DOL) and petition to the US Citizenship and Immigration Services (USCIS) on behalf of the foreign worker. H-1B visa holders can change employers while in the US as long as the new employer files a new H-1B petition on their behalf.
- Dependents: H-1B visa holders’ spouses and children under 21 years of age may qualify for H-4 visas, which allow them to accompany the H-1B holder to the US. However, H-4 visa holders are generally not allowed to work.
- Taxation of H-1B Visa Holders: H-1B visa holders’ tax status may be classified as either resident or non-resident aliens for tax purposes, depending on their length of stay and other factors. As residents, H-1B visa holders are taxed on their worldwide income, including income earned in the US and abroad. This includes their salary from the US employer, bonuses, and any other compensation. They may also be subject to state taxes depending on which state they reside in and work.
The L-1 visa is a non-immigrant visa that allows multinational companies to transfer certain employees from their foreign offices to work in the US. Here are some key points about the L-1 visa:
- Purpose: The L-1 visa is designed for intracompany transfers or to facilitate the transfer of key employees, including executives, managers, and employees with specialized knowledge, from a foreign company to its US branch, affiliate, subsidiary, or parent company.
- Eligibility: To be eligible for an L-1 visa, there must be a qualifying relationship between the foreign and US companies. This relationship may involve parent-subsidiary, branch office, affiliate, or joint venture arrangements. Employees must have worked for the foreign company for a specified period (usually one year) within the past three years before being eligible for an L-1 visa.
- Types of L-1 Visas: There are two main types of L-1 visas:
- L-1A: For executives or managers being transferred to a US office.
- L-1B: For employees with specialized knowledge being transferred to a US office.
- Duration of Stay: L-1A visa holders can stay in the US for up to seven years, while L-1B visa holders can stay for up to five years. However, initial stays are typically limited to three years.
- Employment: L-1 visa holders are authorized to work only for the petitioning US employer. They can’t engage in self-employment or work for other companies without obtaining separate authorization.
- Dependents: Spouses and unmarried children under 21 of L-1 visa holders may be eligible for L-2 visas. L-2 visa holders can study in the US and may apply for work authorization.
- Taxation of L-1 Visa Holders: L-1 visa holders’ tax status may be classified as either resident or non-resident aliens for tax purposes.
E-1 and E-2 Visas
The E-1 and E-2 visas are both non-immigrant visas that allow individuals to enter and work in the US based on their involvement in trade or investment activities. Here are the key differences between the two:
E-1 Visa (Treaty Trader Visa):
- Purpose: The E-1 visa is for individuals who are engaged in substantial trade between their home country and the United States. This trade can involve goods, services, banking, insurance, tourism, technology transfer, and more.
- Eligibility: The applicant must be a national of a country with which the US has a qualifying treaty of commerce and navigation. There must be a significant and ongoing level of trade between the applicant’s home country and the US. This trade can involve multiple transactions over time.
- Employment: E-1 visa holders can work for the enterprise that is conducting the substantial trade, but their primary purpose in the US must be related to the trade.
- Duration of Stay: E-1 visas are typically issued for a period of up to five years and can be extended indefinitely as long as the trade continues.
E-2 Visa (Treaty Investor Visa):
- Purpose: The E-2 visa is for individuals who are coming to the US to direct and develop the operations of an enterprise in which they have invested, or are in the process of investing, a substantial amount of capital.
- Eligibility: The applicant must be a national of a country with which the US has a qualifying treaty of commerce and navigation. They must also be involved in a bona fide investment enterprise. The applicant must own at least 50% of the enterprise or have operational control through a managerial position or other corporate device.
- Investment Amount: The investment must be substantial and at risk. There is no specific minimum investment amount defined by US Citizenship and Immigration Services (USCIS), but it should be enough to ensure the success and viability of the enterprise.
- Duration of Stay: E-2 visas are typically issued for a period of up to five years and can be extended indefinitely as long as the investment enterprise continues to operate.
- Employment: E-2 visa holders can bring essential employees to the US to work for the enterprise. These employees must have the same nationality as the principal E-2 visa holder.
Both E-1 and E-2 visa holders may be classified as either resident or non-resident aliens for tax purposes, depending on their length of stay and other factors.
The E-3 visa is a unique visa available exclusively to citizens of Australia. It allows Australian professionals to come and work in the United States in a specialty occupation.
- Purpose: The E-3 visa is designed for Australian nationals seeking to work in the US in a specialty occupation. This category is similar in many ways to the H-1B visa.
- The applicant must be an Australian citizen.
- They must have a legitimate job offer from a US employer.
- The position must qualify as a specialty occupation.
- The applicant must be employed in a specialty occupation that requires specialized knowledge and possesses the necessary qualifications for that role.
- Duration of Stay: E-3 visa holders are initially granted a stay of up to two years. Extensions are possible in increments of up to two years, with no specific limit on the number of extensions.
- Employment: The U.S. employer must first submit a Labor Condition Application (LCA) to the Department of Labor (DOL) before filing the E-3 petition with the US Citizenship and Immigration Services (USCIS). E-3 visa holders can change employers in the US as long as the new employer files a new LCA and a new E-3 petition on their behalf.
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- Spouse and Dependents: The spouse and unmarried children under 21 of an E-3 visa holder are eligible for E-3D visas, which allow them to accompany the primary visa holder to the US. Spouses of E-3 visa holders are also allowed to work in the US.
- Taxation of E-3 Visa Holders: E-3 visa holders’ tax status may be classified as either resident or non-resident aliens for tax purposes. If the E-3 visa holder earns additional income from sources outside their primary job (e.g., freelance work, investments), that income is also taxable and must be reported.
Important Reminder to US Visa Holders
Understanding your tax obligations as a visa holder in the US is essential for compliance and to ensure you don’t incur unnecessary tax liabilities. It’s advisable to consult with a qualified tax advisor or accountant with expertise in international taxation to ensure you meet all requirements and take advantage of any available tax benefits. Remember, tax laws are subject to change, so staying informed is key to maintaining your financial health in the US.
If you hold other US visas not mentioned in this article and require assistance with your 2023 US taxes, feel free to contact Universal Tax Professionals. We provide personalized US tax services to all Americans living all over the world.
Updated on January 3, 2024.