The Journey / Money
Your first US tax return
Resident or nonresident for tax purposes, the substantial presence test, the dual-status first year, and reporting accounts back home (FBAR and FATCA).
Your immigration status and your tax status are different things. An H-1B worker is usually a “resident alien” for tax purposes, which means you are taxed on worldwide income like a US citizen.
Resident or nonresident?
The IRS uses the substantial presence test. You are a tax resident for a year if you were in the US at least:
- 31 days in the current year, and
- 183 days over three years, counting all days this year, one-third of the days last year and one-sixth of the days the year before.
Most people on an H-1B for a full year pass easily. Former F-1 students are often “exempt individuals” for their first five calendar years, so their student days may not count.
The first year: dual status
If you arrive partway through a year, you may be a nonresident for part of the year and a resident for the rest. That’s a dual-status return, and it has restrictions (for example on the standard deduction and joint filing). Some couples can instead elect to be treated as residents for the whole year. IRS Publication 519 explains the choices; many people use a CPA for this one return.
Money and accounts back home
As a tax resident you must report worldwide income, including interest, rent and gains in your home country. Tax treaties can prevent double taxation, but you still report.
Two separate reports cover foreign accounts:
| Report | Filed with | Threshold |
|---|---|---|
| FBAR (FinCEN Form 114) | FinCEN, online | Combined foreign account balances above $10,000 at any point in the year |
| Form 8938 (FATCA) | IRS, with your tax return | Higher thresholds that depend on filing status and where you live |
For Indian account holders, NRE and NRO accounts, fixed deposits and some insurance or mutual fund holdings may all count. Ask a CPA who works with Indian clients.
State taxes
Most states tax income too, and moving mid-year means part-year returns in two states.
The good
- Most H-1B workers become tax residents quickly and file like everyone else
- Married couples can often file jointly once both are residents
- Free official IRS resources explain every form
The hard
- The first year can be "dual status", which is more complex
- Foreign bank accounts above $10,000 combined must be reported every year
- Penalties for missed FBAR reports can be severe
Sources
- IRS: Substantial Presence Test
- IRS: Dual-Status Aliens
- FinCEN: Report of Foreign Bank and Financial Accounts (FBAR)
- IRS: Comparison of Form 8938 and FBAR Requirements
- IRS Publication 519: US Tax Guide for Aliens
Rules change often. If something here looks out of date, it probably is; check the official source and talk to an immigration attorney about your own case.