A TEACHER on H1-B visa, working on his second year in the US, recently dropped by at my office asking if I could prepare his exemption from tax payments under the US-Philippines tax treaty program.
The treaty provides that exempt individuals include teachers, trainees and students with either F, J, M or Q visas who substantially comply with their visa requirements. This, however, is limited to the first two years of the visa. Among Filipinos, those teachers holding J1 visas qualify for the tax exemption. It is essential to note though that the IRS Code requires that the educational institution the visa holder works for is a "qualified educational institution." A local Montessori or other private school might not be considered a "qualified educational institution" though most universities and colleges, and even unified school districts are.
In addition to the tax exemption, the teacher or student becomes eligible for the Medicare and Social Security taxes abatement, if such taxes were withheld from their paychecks, as both the Internal Revenue Code and the Social Security Act allow an exemption to international students and teachers who have entered the United States on F-1 or J-1 status and who are still classified as non-resident aliens under the residency rules of the Internal Revenue Code.
But will a teacher on H1B visa qualify for tax treaty, Medicare and Social Security tax exemptions?
NO. The H-1B is an employment visa which is normally issued to individuals who seek temporary entry in a specialty occupation as a professional. It is normally restricted to persons who have a bachelor degree (or the equivalent in work experience).
The H-1B visa holder who has been in the United States for the entire tax year (in other words, you entered the US on your H-1B visa prior to January 1, 2009) is considered a resident alien for tax purposes while the alien with F, J, M or Q visas is legally considered "not in the US" when they come here, someone not subject to the substantial presence test.
The H1-B visitor will pay taxes at the state and federal level at the same tax rates as US citizens, and are liable to pay Social Security and Medicare taxes. He can claim all the exemptions and credits which are available to US citizens, to include filing jointly with his spouse (even if he/she is living in another country) and claiming the exemptions for his children (assuming the children lived with you in the US for more than half of the year). To file jointly with his spouse and/or to claim the exemptions for his children, he must either apply for and receive valid Social Security numbers for them or request Individual Tax Identification Numbers (ITIN).
Additionally, assuming that you’re on H1-B visa and filed for tax treaty exemptions, as has been previously advised to my teacher visitor, would there be negative ramifications of doing such once the need to extend your visa or adjust status arises? I’m betting it would adversely affect your immigration adjustment but that would be best answered through legal advice.
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Evangeline can be reached at her marketing location at the Ground Floor of Eagle Rock Plaza (in front of Jollibee), 2700 Colorado Blvd., Los Angeles, CA 90041 or at her business address at 450 N. Brand Blvd., Ste. 600, Glendale, CA 91203, phone number (323) 356-3803 or (323) 254-6787.
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The purpose of this article is to provide information of general interest to our clients and prospective clients. The information provided is general in nature and should not be considered complete information on any product or concept described.
( Published March 20, 2010 in Asian Journal Los Angeles p. C4 )
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