January 16, 2019

Exempt Nonimmigrant Nonresident Visa Holders

 Indian Pretty Lady


Wages paid to nonresident aliens employed within the United States by an American or foreign employer, in general, are subject to Social Security/Medicare taxes for services performed by them within the United States, with certain exceptions based on their nonimmigrant status. This article discusses which classes of nonimmigrants and nonresident aliens are exempt from U.S. Social Security and Medicare taxes.
 

How many nonimmigrants overstay their visas and refuse to return to their country of origin?

According to the Department of Homeland Security, more than 600,000 foreign travelers overstayed their visas in 2017. Click here to view the full report : https://www.dhs.gov/sites/default/files/publications/18_0807_S1_Entry-Exit-Overstay_Report.pdf 

Is an H-1B visa holder a permanent or temporary resident?

The United States Citizenship and Immigration Services (USCIS) does not consider an H-1B visa holder a permanent resident. They are a nonimmigrant alien. The Internal Revenue Service (IRS) may consider the H-1B visa holder a resident if they meet the substantial presence test. They will never meet the green card test because they are not a lawful permanent resident per the definition of the USCIS.

How long can an H-1B visa holder stay in the U.S.?

A foreign worker with an H-1B visa can stay in the U.S. for a maximum of six years. The H-1B visa is initially valid for three years and can then be extended for another three years. 

How do you measure calendar years for exempt individuals?

When measuring calendar years for an exempt individual, the actual date of entry is not important. It is the calendar year of entry which is counted toward the two or five calendar years respectively. Thus, for example, a foreign student who enters the United States on November 15, 2017 counts 2017 as the first of his five years as an "exempt individual." 

Where do visa holders apply for a work permit?

Visa holders apply for a work permit with the United States Citizenship and Immigration Services (USCIS) 

If visa holders have work permits, do they still need ITINs? 

An individual only needs an ITIN if they are not able to qualify or attain a social security number from the social security administration. If the visa holder has a social security number, he does not need an ITIN. 

As tax professionals, are we required to verify if a taxpayer is here on an H-1B visa? 

It is helpful to understand the taxpayer’s situation and status to ensure you file an accurate tax return. 

Are Q-3 and M-2 visa holders allowed to work just like the J-2 visa holders? 

Maybe. Please contact an immigration attorney for more information. 

Can nonresident aliens claim the standard deduction? 

If you are a nonresident alien, you cannot claim the standard deduction. However, students and business apprentices from India may be eligible to claim the standard deduction under Article 21 of the U.S.A.-India Income Tax Treaty. Refer to Publication 519, U.S. Tax Guide for Aliens and to Revenue Procedure 93-20 for more information. 

Can nonresident aliens file as Head of Household? 

You cannot file as head of household if you are a nonresident alien at any time during the tax year. 

Can nonresident aliens file as Married Filing Jointly? 

Generally, you cannot file as married filing jointly if either spouse was a nonresident alien at any time during the tax year. However, nonresident aliens married to U.S. citizens or residents can choose to be treated as U.S. residents and file joint returns. For more information on these choices, refer to Nonresident Spouse Treated as a Resident. 

Nonresident exempt students from India can only claim itemized deductions? 

Nonresident aliens cannot claim the standard deduction. They can deduct certain itemized deductions if they receive income effectively connected with their U.S. trade or business. These deductions include: 

  • State and local income taxes,
  • Charitable contributions to U.S. non-profit organizations,
  • Casualty and theft losses,
  • Miscellaneous itemized deductions, and
  • The ordinary and necessary expenses related to a U.S. trade or business. 

Use Schedule A of Form 1040NR to claim itemized deductions. If you are filing Form 1040NR-EZ, you can only claim a deduction for state or local income taxes. If you are claiming any other deduction, you must file Form 1040NR. For a discussion about certain itemized deductions refer to IRS Publication 519.  

Do J-visa holders pay Social Security or Medicare tax? 

Nonresident alien professors, students, teachers, physicians, researchers and other aliens temporarily present in the United States in J-1 nonimmigrant status are exempt from paying Social Security and Medicare tax on wages paid to them for services performed within the United States as long as such services are allowed by USCIS for these nonimmigrant statuses, and such services are performed to carry out the purposes for which such visas were issued to them. 

Does the employer need to withhold income tax on H-2A visa holders? 

Compensation paid to H-2A agricultural workers for services performed in connection with the H-2A visa is not considered to be "wages" for purposes of federal income tax withholding, and thus is not subject to mandatory withholding of U.S. federal income tax. 

Do H-2A visa holders pay Social Security or Medicare tax? 

Foreign agricultural workers temporarily admitted into the United States on H-2A visas are exempt from U.S. Social Security and Medicare taxes on compensation paid to them for services performed in connection with the H-2A visa. This is true whether they are resident aliens or nonresident aliens. 

Are criminals supposed to report all income? 

Individuals must report all income regardless if the income is generated by legal or illegal means. 

Can an undocumented illegal alien be a shareholder of an S-corporation? 

To be a shareholder of an S-corporation, you must be a resident alien for tax purposes. An undocumented illegal alien can be a resident alien for tax purposes if they meet the substantial presence test. However, they cannot be a shareholder of an S-corporation because they cannot place themselves on payroll since they are not authorized to work in the United States. 

When an exempt nonresident alien becomes a resident alien during the year, what portion of the income is subject to Social Security and Medicare tax? 

Only the income earned after the individual became a resident alien is subject to Social Security and Medicare tax. 

Does a shareholder of an S-corporation need to have a green card? 

Under U.S. tax code, all shareholder must be resident aliens. Shareholders can be resident aliens without a green card if they meet the substantial presence test.

 Is an undocumented illegal alien exempt from Social Security and Medicare tax? 

Wages paid to resident aliens employed within the United States by an American or foreign employer are subject to Social Security/Medicare taxes under the same rules that apply to U.S. citizens. An undocumented illegal alien can be a resident for tax purposes if they meet the substantial presence test.

Are asylees residents or nonresident aliens? 

An individual who has been granted asylee or refugee status by the U.S. Citizenship and Immigration Services is not exempt from the substantial presence test. They become resident aliens on January 1st on the year they meet the substantial presence test. 

Can an S-Corporation have foreign shareholders? 

Yes, a foreigner, non-citizen individual may be an S-Corporation shareholder if they are a resident alien. This means an S-corporation can be owned by a foreigner, non-citizen, resident alien. However, an S corporation generally cannot be owned by a nonresident alien. 

If an undocumented illegal alien has an ITIN and later receives a green card, do they have to apply for a social security number or can they keep using the ITIN. 

When an individual becomes a lawful permanent resident and is issued a green card, they will also be issued a social security number (SSN). The must use their new SSN when they file tax returns. They should also let the IRS know they will no longer need an ITIN. The best way to inform the IRS is to call ITIN Operations at 855-723-2060 extension 244.  

If a visa holder gets a side job and performs work outside of their visa parameters, do they need to report that income? 

Yes, you must report all income to the IRS even if it’s outside of your visa parameters. 

I have a client with two different TIN numbers: one is used on the tax return, and the other is used on the W2 and W9. Why would there be two separate numbers and why wouldn't the same one be used on reporting forms and the tax return? 

What we see often is a taxpayer has an ITIN on the Form 1040 and has a social security number on the W2. If the social security number belongs to the taxpayer and was issued by the social security administration (SSA), that SSN must also go on Form 1040. If the SSN was not issued by the SSA, add the taxpayer’s ITIN to Form 1040 and submit the W2 as is with the social security number. Unfortunately, many times ITIN holders are using fake social security numbers to work. Although illegal, the IRS still wants the taxpayer to report all income earned and file accurate tax returns. 

What if you are a U.S. citizen but live out of the U.S. for most of the year and have earned income. Do you have to report that income?

If you are a U.S. citizen or resident alien, the rules for filing income tax returns and paying tax are generally the same whether you are in the United States or abroad. Your worldwide income is subject to U.S. income tax, regardless of where you reside.

 

Are E-2 visa holders subject to self-employment tax? 

The E-2 visa is available to individuals making a large business investment in the United States, for example, contributing more than 50 percent to a business venture. E-visa holders are not exempt from paying self-employment tax. They must also pay income tax on all income earned in the U.S. 

Do undocumented illegal aliens need to pay self-employment tax? 

It depends. If the undocumented illegal alien is in the U.S. long enough to meet the substantial presence test and be a resident for tax purposes, yes, they must pay self-employment tax. If the undocumented illegal alien does not meet the substantial presence test and is a nonresident alien, they do not pay self-employment tax. Generally, nonresident aliens are not subject to self-employment tax. However, self-employment income you receive while you are a resident alien is subject to self-employment tax even if it was paid for services you performed as a nonresident alien. Click here to read more. 

Is a foreign partner in a U.S. domestic partnership exempt from social security tax? 

Yes, a foreign, nonresident, partner is exempt from paying social security and Medicare tax. They must however pay income tax on their share of the earnings from the U.S. domestic partnership.   

How long can a J-1 visa stay in the United States? 

The amount of time that you can stay in the U.S. under your J-1 visa is dependent on your specific program, though the maximum is usually seven years except under certain circumstances. 

When did Latino Tax Pro start? How many members do you have? 

Latino Tax Professionals Association was established in 2007 and we currently have over 10,000 members across the nation. 

Will the IRS report undocumented illegal immigrants to ICE? 

The Internal Revenue Service is a collection agency and administers the Internal Revenue Code enacted by Congress. The IRS does not share information with ICE or any other government agency. 

Do H-1B visa holders file 1040NR or 1040? 

H-1B visa holders file Form 1040NR if they are not residents and Form 1040 if they are residents. A taxpayer is a resident for tax purposes if they meet either the green card test or substantial presence test. 

Are H-1B visa holders resident aliens? 

A taxpayer is a resident for tax purposes if they meet either the green card test or substantial presence test. H-1B visa holders do not meet the green card test because their nonimmigrant status requires the to return to their country of origin. They can become resident aliens if they meet the substantial presence test. 

Do visa holders pay taxes? 

All individuals, including visa holders, with U.S. source income must pay federal income tax on that income. They may also be subject to federal tax on worldwide income if they are a U.S. citizen or a resident for tax purposes. They visa holder may be subject to Social Security and Medicare tax depending on the type of visa they have. 

If you are a Spanish teacher from Spain here temporarily on a J-1 Visa are your wages subject to federal income tax? 

In general, aliens performing services in the United States (U.S.) as employees are liable for federal income tax. 

Can spouses of H1-B visa holders work? 

Spouses of H1-B visa holders are granted an H4 visa. They are not entitled to work or carry on their own business unless they obtain an employment authorization document (EAD). However, not all dependent spouses of H-1B visa holders are eligible to apply for an EAD. 

Should an H1-B visa holder file Form 1040 or Form 1040-NR? 

It depends. If they meet the substantial presence test and become a resident, they must file Form 1040. If they are a nonresident, they must file Form 1040NR. 

Can a citizen of Canada here on an E visa incorporate as an S-Corporation? 

To qualify for S corporation status the shareholders must be resident aliens. If the E visa holder meets the substantial presence test and becomes a resident alien, they can become a shareholder in an S-corporation. Now, if they are the only shareholder and are involved in the operations of the S-corporation, they must be on payroll and pay themselves reasonable compensation. The question now is: Can the E-visa shareholder be on payroll? Are they authorized to work in the U.S.? Do they have a social security number? All these questions must be considered. Also, will they be violating their E-visa status by receiving income from the S-corporation? As far as the IRS is concerned, they only care if the S-corporation shareholder is a resident, receives reasonable compensation (if they are in fact authorized to work), and reports all income and expenses. As far as violating their visa status, that is an immigration issue not an IRS issue. 

A taxpayer with an investor's immigrant visa, lost his visa status in 2017. He is continuing with his startup business in the U.S. His business is incorporated. He has drawn funds from the business and received income from a related foreign business in 2018. What are his tax implications? 

Make sure he reports all income and expenses to the IRS. If he is no longer authorized to work in the U.S. he cannot be on payroll; therefore, he cannot receive reasonable compensation from the S-Corporation. 

How would you handle undocumented employees without U.S. identification on the company's books? 

Undocumented illegal employees should not be working. If the company finds out they are undocumented, they must dismiss them immediately. 

If F-1 visa holders are still in the country after five years, are they subject to social security taxes? 

Yes, if they become resident aliens. Click here for more information: 

https://www.irs.gov/individuals/international-taxpayers/foreign-student-liability-for-social-security-and-medicare-taxes 

What happens if an F-1 visa holder files a tax return but does not file Form 8843? 

He may not be able to exclude days of presence for that year. He may meet the substantial presence test and become a resident. 

Is an employer of an H-2A visa required to pay employer share of FICA and Social Security?

No, neither the employer of an H-2A visa holder or the employee with the H-2A visa pays Medicare or Social Security tax. 

Is there a way to turn in the ITIN after receiving a Social Security number? 

If you are eligible for a Social Security number, you need to provide your SSN and previous ITIN to ITIN Operations by calling 855-723-2060 ext. 244. 

For how long are teachers exempt from FICA? 

J-1, Q-1, and Q-2 non-students are considered Nonresident aliens during their first 2 calendar years in the U.S. They usually become resident aliens on January 1st of their third calendar year and begin paying social security and Medicare taxes on income earned after that point. 

Is a foreigner who lives and works abroad for a U.S. company have to pay taxes on the income they receive? 

A nonresident alien individual who is not engaged in a trade or business in the United States and has U.S. income on which the tax liability was not satisfied by the withholding of tax at the source may have to file a tax return.

 

Tax Pro Toolkit

Get FREE access to financial tools and calculators along with tax alerts, useful links, and much more!

Get Toolkit No, I don't want free tips