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An H1B visa can be your ticket to fulfilling your dreams, but before you do, you should ask yourself, how much income tax will I pay?
Your total taxable income will reduce your 'take home pay' and the money you'll have to support your family. Here's everything you must know about your potential tax bill and what you should expect to pay each tax year based on your potential income.
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What Is an H1B Visa?
An H1B visa allows specialized workers from abroad to work in the United States. The visa lasts three years but can be extended another three years before expiration. Eligible employees include those with at least a bachelor's degree and specialized experience in fields such as medicine, mathematics, IT, finance, technology, or accounting.
What Type of Taxes Will I Pay in the United States on an H1B?
As an H1B worker in the US, you can expect to pay between 20-40% of your wages in federal and state, and local taxes, depending on your income level. These taxes will include the following:
- Federal income tax
- Federal payroll tax (a.k.a. FICA)
- State income tax (depending on where you live)
- Local income tax (depending on where you live)
You may also pay these taxes while living in the United States: sales tax, property tax, transfer tax, capital gains tax, inheritance or estate tax, gas tax, and hotel or lodging tax. An income tax calculator or tax withholding estimator may be able to help you manage your finances.
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Federal Income Taxes
If you work in the US on an H1B visa, you must file a US tax return using IRS Form 1040 NR. The only downside is you won't get the same deductions most US citizens get. However, if you become a US citizen in the future, you may claim the same deductions.
- US Citizens, permanent residents, resident aliens, and nonresident aliens working in the US (including H1B workers who don't pass the Substantial Presence Test) pay federal income taxes on their US source income. Your federal income tax rates and percentage depend on how much you earn. The US has a progressive tax system with "marginal tax brackets," which means that different portions of your income are taxed at different amounts.
- Most H1B workers pay 20-35% of their income in federal income tax
- If you are working on an H1B and meet the Substantial Presence Test and are thus considered a resident alien, you may also owe federal income tax on your worldwide income
- US Citizens and resident aliens also pay federal income tax on worldwide income
Paying Federal Payroll Tax (FICA) - Social Security and Medicare - On an H1B
- The US government takes 6.2% out of your pay for social security up to $132,900 of your pay. This is included in "FICA."
- The US government takes 1.45% out of your pay for Medicare. This is included in "FICA."
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Federal Income Tax Brackets for H1B Visa Holders in 2023
|Tax Rate||Single||Married Filing Jointly||Head of Household|
|10%||$0 to $11,000||$0 to $22,000||$0 to $15,700|
|12%||$11,000 to $44,725||$22,000 to $89,450||$15,700 to $59,850|
|22%||$44,725 to $95,375||$89,450 to $190,750||$59,850 to $95,350|
|24%||$95,375 to $182,100||$190,750 to $364,200||$95,350 to $182,100|
|32%||$182,100 to $231,250||$364,200 to $462,500||$182,100 to $231,250|
|35%||$231,250 to $539,900||$462,500 to $693,750||$231,250 to $578,100|
|37%||over $539,901||over $628,301||over $523,601|
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Your tax bracket depends on the amount of income you earn. The federal income tax system charges a federal income tax rate on each category of income. For example, if you're single and make up to $11,000, you paid a 10% tax rate. But if you made $30,000, you'd pay a 10% tax rate on the first $11,000 and 12% on the remaining $19,000.
State Income Taxes
- Certain states have an additional income tax, usually ranging from 0-10% of your gross income
- Both US Citizens and non-citizens working in that state will pay this state income tax
- This tax will be withheld from your paycheck by your employer
- During tax season (January to April), you will need to file a state income tax return. You can also file an extension and file in October instead
- Some states do not have a personal income tax. These states include Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming. New Hampshire and Tennessee don't tax wages, but they do tax dividends and interests at the state level
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Local Income Taxes
- Some local towns and cities have a local income tax, often 1-4% of gross income
- In most instances, local income tax will be withheld on your paycheck by your employer as long as the address on your W4 Form is up to date
- If you accidentally put the wrong address on your W4 Form, you may pay incorrect local taxes! A financial advisor like MYRA can help you pay taxes to the proper locality and get back erroneously paid local taxes
- During tax season, you will need to file a local income tax return. These forms are usually very simple, but if you find them confusing, MYRA can help!
H1B Taxes Employers are Responsible For on Your Behalf
- Everything you paid in payroll taxes (6.2% in social security and 1.45% for Medicare = 7.65% total) will also be paid on top of what you pay by your employer. You will not notice this payment, and your employer is responsible for paying it to the IRS
- Self-employed people have to pay the employer portion themselves on top of the individual portion, but this does not apply to H1B workers who can't be self-employed
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Filing Taxes With an H1B Visa
Understanding how to file taxes with an H1B visa is important. You must know your residency status and the necessary documentation to file taxes, especially if you want to get your applicable tax deductions.
Determine Your Residency Status
Your alien status will determine your tax liability. To determine your residency status, you must take the substantial presence test. This determines if you have spent substantial time in the US as a resident alien during the last three years.
This includes spending at least 31 days in the US in the current year and 183 days combined in the current year, plus the two previous years. The test includes:
- Every day you were in the US in the current year
- 33% of the days you were in the US last year
- 16.67% of the days you were in the US two years ago
Collect Tax Documentation
To file taxes, you will need certain documentation to prove your taxable income, including the following:
- Social security card
- Income documentation, including W-2s and 1099s
- Proof of any investment income
- Documents from any other income
Residents of certain countries, including Mexico, South Korea, Canada, and some residents from India (students and apprentices), may get tax credits for things like childcare. If you are eligible for tax deductions, such as those, you must provide adequate proof of the expenses.
File With a Professional (If Needed)
Filing taxes can be complex, especially for an H1b visa holder. Consider filing with a professional to ensure you take advantage of all the tax deductions you're eligible for and that you pay applicable taxes on your taxable income.
This is especially important if you're eligible for itemized deductions or have access to a tax credit you didn't know existed. Why have a higher tax liability than necessary?
Income Tax Saving Tips for H1B-Holders
H1B holders may have access to certain tax deductions that may make them eligible for a tax refund, including the following:
- Dependents, excluding your spouse (and no one else claims them)
- Mortgage interest paid
- Certain health and dental expenses (if they exceed the annual threshold)
- Some investment contributions, such as retirement contributions
- Charitable donations
- Relocation expenses
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What if I Live In One State and Work in Another?
Be sure to put your home address on your W4 Form and update it if you move. In general, you will not pay double taxes, but you may have to file tax returns in both states. Many states have "reciprocity" agreements with their surrounding neighbors, and you will usually pay the higher of the two state's taxes. A tax advisor like MYRA can help you do complicated multi-state tax returns, ensuring that you get back any credits you are owed and don't double pay.
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How Much Will I Pay Overall?
It depends on the state and your income level. On average, H1B workers should plan to pay 20-40% of their adjusted gross income in total taxes in the United States. The higher your income and the higher tax state you live in, the higher your taxes will be. Don't forget you may also pay other taxes, including capital gains taxes, sales taxes, transfer taxes, and property taxes.
Can I File Jointly With My Spouse?
Your tax filing status depends on your spouse's citizenship. If you are both nonresident aliens, you must file married filing separately. However, if you are a nonresident alien married to a US citizen, you can file married filing jointly.
Can I Claim Dependants on My Tax Returns on an H1B Visa?
Nonresident aliens cannot claim dependents on their tax returns. The only exception to the rule is for those who live in Canada, Mexico, and South Korea or business apprentices from India, as they may claim child tax credits.
What Is Annual Income?
Annual income is the money you make throughout the calendar year from all sources. It refers to all income earned before taxes.
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How Much Income Tax Will I Pay - The Bottom Line
Figuring out how much income tax I will pay when you're on an H1B visa can seem overwhelming. Consider getting professional support to ensure you have the right filing status, understand your tax bracket, and maximize the deductions on your tax bill.