Taxes for J-1 and H-1B Residents

Your US tax situation depends on tax residency, which is decided by IRS rules and not by your visa label. Many IMG residents are treated as nonresidents for their first years, then become tax residents, and the rules for each stage differ. This page explains the main ideas and points to IRS sources. It is not tax advice. Because the rules are technical and mistakes can be costly, plan to use a tax preparer experienced with international taxpayers.

Resident or nonresident for tax purposes #

The IRS says a nonresident alien is a person who has passed neither the green card test nor the substantial presence test. The substantial presence test counts days: at least 31 days in the current year and at least 183 days over three years, counting all current-year days, one third of the first prior year, and one sixth of the second prior year.

Exempt individuals #

Days you are an "exempt individual" do not count toward the test. The IRS lists teachers and trainees on J visas, and students on F, J, M and Q visas, who substantially comply with the visa requirements. A J-1 resident in a clinical training programme generally falls in the teacher or trainee category, but your sponsor and preparer should confirm your exact status.

The IRS limit for teachers and trainees: you are not an exempt individual if you were exempt as a teacher, trainee or student for any part of 2 of the 6 preceding calendar years. There is an exception for some people paid entirely by a foreign employer. In practice this means a J-1 resident can often exclude the first two calendar years of presence, after which days start to count. If you were previously in the US as a student, this can shorten the period. Check Publication 519.

• H-1B holders are not exempt individuals. Their days count. An H-1B arrival can become a tax resident quickly depending on the dates and prior stays.
• Closer connection exception. Some people who meet the day test may still be treated as nonresidents under an exception. It has conditions, so ask a preparer.

Form 8843 #

If you exclude days as an exempt individual, the IRS says you file Form 8843 with your return, or mail it by the due date if you have no return to file. The IRS says that if you do not file it on time you generally cannot exclude those days unless you show you took reasonable actions. This is an easy form to miss and the cost of missing it can be large.

Which return: 1040 or 1040-NR #

The IRS says nonresident aliens who must file use Form 1040-NR. Income effectively connected with a US trade or business, such as resident wages, is taxed at graduated rates and reported on the first page. Tax residents file under the resident rules.

Nonresidents and residents are treated differently on deductions, credits, filing status and some benefits. Software designed for US residents often does not handle 1040-NR correctly, and the standard commercial products may not support it. Many universities provide access to dedicated nonresident tax software or workshops, so ask your GME office.

Social Security and Medicare (FICA) #

FICA is separate from income tax. The IRS says nonresident aliens in F-1, J-1, M-1 or Q status who are temporarily in the US to carry out the purpose of the visa are generally not subject to FICA while they remain nonresident aliens. Wages of those who become resident aliens are subject to FICA. The IRS also publishes a notice that FICA withholding applies when a person changes status to H-1B.

What this means for residents:

• On a J-1, FICA may not be withheld at first, then may begin once you become a tax resident. The date matters.
• On an H-1B, FICA is generally withheld.
• If FICA was withheld when it should not have been, ask your employer to correct it first. The IRS also describes a refund claim process using Forms 843 and 8316. A preparer can guide you.

Employer payroll departments sometimes get this wrong, in either direction. Ask yours how they decide and confirm against IRS guidance.

Treaties #

The US has income tax treaties with many countries. Some contain provisions for trainees or students, and some of these have specific limits, conditions or exclusions that may not apply to physicians in paid training. Whether your country's treaty helps you depends on the treaty text and your facts, so ask your preparer rather than assuming. Treaty benefits usually require specific forms and claims on the return.

State and local taxes #

Most states tax resident wages, and a few do not tax wages. Some cities add their own tax. Rules for nonresident filers differ. Check your state's revenue department website.

What you should do #

1. Keep a day-count record: passport stamps, I-94 history, and any time you left the US.
2. Ask HR about withholding: you will complete a Form W-4 (employer withholding) or an alternative. Nonresident aliens have special instructions, per the IRS. Get your preparer's advice on how to complete it.
3. Gather documents for January and February: your W-2 from your employer, any 1042-S, bank interest statements, and your arrival history.
4. Consider your family: a spouse or dependent can change filing options, and ITIN rules apply to some. See SSN and ITIN.
5. Plan for the home country: your home country may tax your worldwide income or require filing. This page covers US rules only.
6. Hire a professional who handles J-1 and H-1B cases, particularly in your first, second and third years, and when your status changes. The fee is usually small relative to the cost of errors.

Your visa choice and your tax result are linked, since J-1 versus H-1B affects exempt status and FICA. Raise the topic with your preparer before a change of status.