- 1 Employment Visas and US Tax, FBAR & FATCA
- 2 Substantial Presence Test Explained
- 3 Worldwide Income and Global Asset Reporting
- 4 Nonimmigrant Visas
- 5 Immigrant Visas
- 6 Dual-Status Visa
- 7 Current Year vs Prior Year Non-Compliance
- 8 Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)
- 9 Golding & Golding: About Our International Tax Law Firm
Employment Visas and US Tax, FBAR & FATCA
When it comes to US taxes, it can be very complicated for taxpayers who are in the United States on a visa. The United States offers various different types of visas; and while from an immigration standpoint the different visas will impact the path of permanent residency or citizenship — from a US tax perspective often times these visa holders are treated the same — unless there is an exception such as an F-1 visa (first five years) or a treaty election. In general, foreigners who are in the United States on an immigrant, non-immigrant, or dual intent visa will become subject to US tax on their worldwide income, as well as have to disclose their overseas assets, accounts, investments, and income and various international information reporting forms such as the FBAR and Form 8938 (FATCA). Let’s take a brief look at employment visas, US taxes, FBAR & FATCA
Substantial Presence Test Explained
One of the key aspects of residing in the United States on a US Visa is that at the end of the day, most taxpayers are going to be subject to tax on their worldwide income in any year that they meet the Substantial Presence Test (SPT). From a tax perspective, it does not really matter whether it is an immigrant or non-immigrant visa – and while those distinctions may impact the ability to attend a green card or renew the visa — from a tax perspective either type of visa holder may be subject to SPT, in addition to having to report their global assets, accounts, and investments to the US government.
Worldwide Income and Global Asset Reporting
When a person meets the Substantial Presence Test, they are subject to US tax on their worldwide income. Thus, even if a foreign national resides in the United States and all of their income is from outside the United States, if they meet the Substantial Presence Test, then they are required to report their worldwide income and pay US tax (although foreign tax credits may apply). In addition, there are certain exceptions, exclusions, and limitations such as the closer connection exception.
With a nonimmigrant visa, the Taxpayer has no intent on remaining in the United States; in other words, it is a temporary visa. One common example of a nonimmigrant visa is the B1/B2 tourist visa. Other types of non-immigrant visas include H-1B and L-1 — but these two specific types of employment visas are actually dual-status visas (explained below).
With an immigrant visa, the taxpayer has a more direct route to becoming a lawful permanent resident if that is what they prefer. In addition, it is typically easier to renew an immigrant visa, such as an E-2 (Treaty Visa) – than for example, an H-1B which has a limited shelf life, and limited renewals available. Again, whether or not a taxpayer is on an immigrant or non-immigrant visa is typically not material to whether or not they will become subject to US tax on their worldwide income.
USCIS has categorized certain visas as being dual-status, which basically makes it easier for the taxpayer to pursue permanent residence down the line. This too does not impact US tax implications for meeting the substantial presence test.
Current Year vs Prior Year Non-Compliance
Once a taxpayer missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, taxpayers should consider speaking with a Board-Certified Tax Law Specialist that specializes exclusively in these types of offshore disclosure matters.
Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)
In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to streamlined procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead of the Streamlined Procedures. But, if a willful Taxpayer submits an intentionally false narrative under the streamlined procedures (and gets caught), they may become subject to significant fines and penalties.
Golding & Golding: About Our International Tax Law Firm
Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure.
Contact our firm today for assistance.