Taxation of Non-Immigrants with H-1b Status

An H-1b visa gives employers the opportunity to hire temporary foreign workers in certain specialty occupations. The H-1b is what is known as a “non-immigrant” visa, meaning that workers in the United States under this type of visa are not seeking permanent residency status, and may only stay in the country as long as they are employed in the specific job for which they obtained the visa.
For tax purposes, a worker on an H-1b visa must be categorized as either a resident or non-resident alien. If considered a non-resident alien, the worker will only be taxed on income earned in the United States. Resident aliens pay U.S. federal income tax on all earnings.
To determine whether a worker is a resident or non-resident alien, the Internal Revenue Service will apply what is known as the “substantial presence test.” If the H-1b worker is found to have a substantial presence in the United States, he or she will be deemed a resident alien. The general guidelines for establishing a substantial presence are:

• The worker must have been physically present in the country for a minimum of 31 days during the tax year for which the return is filed, and
• The following number must be at least 183—The total number of days in the country during the tax year filed plus one-third of the number of days in the tax year immediately before the filing year plus one-sixth of the number of days in the tax year two years before the filing year.

It is important to note that both criteria above must apply.