Work Visa & U.S. Tax Laws – Are You In IRS Compliance?
When a person obtains a work visa, such as an H-1B, L-1, or E-2, there may be significant (and unfortunate) tax consequences that the individual may not have contemplated before.
This is especially true, because often times when people refer to U.S. taxation they refer to citizen-based taxation (CBT), which is inaccurate.
Work Visa & U.S. Tax Laws
Since a non-US person who has attained a work visa in the United States is not considered a US citizen, it can be confusing to realize that “U.S. citizen” for purposes tax in the US goes far beyond just U.S. citizens.
U.S. Person for Tax Purposes
The proper term when referring to the taxation of individuals by the United States should be U.S. person. That is because taxation of U.S. Citizens is much more broad than just U.S. citizens and includes the following (individuals):
- U.S. Citizen
- Legal permanent resident
- Non-permanent resident who meets the substantial presence test
- Long-term permanent resident who did not properly expatriate
U.S. Worldwide Taxation
For individuals in the United States on work visas, the threshold requirement for US tax to determine whether they meet the Substantial Presence Test.
The test is a bit complicated: it typically requires at least 30 days within the United States in the present year, and a total of 183 days over the last three years, with a 1:1, 1:3, and 1:6 ratio depending on which tax year is being referred to in the analysis.
For an example of the analysis, please refer to our prior article which can be found here (Substantial Presence Test Examples).
Earning Income From Outside of the U.S.
One of the most important aspects of worldwide income, is just that – it involves U.S. taxation of worldwide income. This can have a catastrophic financial impact for some of our clients, because many of our clients who are in the U.S. on work visas might be from countries that do not typically tax all types passive income such as interest, dividends, capital gains. This is common in countries such as Hong Kong and Singapore.
Moreover, you may be from a country that has a much higher threshold before real estate rental income becomes taxable. Unfortunately from a U.S tax perspective, the baseline thresholds is that all income is taxable, and then you have to work backwards to see if there any exclusions are exceptions such as:
- Foreign Tax Credits
- Totalization Agreement
- Tax Treaty
Reporting under FBAR or FATCA
Beyond just the filing of US tax returns to disclose income, there is a much bigger requirement that a person report various offshore and foreign, assets, investments, and accounts to the U.S. on a myriad of different forms including:
- FATCA Form 8938
- Form 3520
- Form 5471
- Form 5471
- Form 8865
- Form 8621
The reason why reporting foreign assets, income, accounts, and investments is important is because the IRS has made international tax enforcement a key priority. Moreover, the IRS is empowered to issue extremely high fines and penalties against you for noncompliance. In addition, in order to enforce these penalties, the IRS has the right to:
- Lien your Property
- Levy your Bank Accounts
- Seize Your Property
- Customs Holds
- Passport Revocation
Of course, not everybody will be subject to penalties, and some people will be able to obtain a waiver, show reasonable cause, or simply fly below the radar. The problem is, with more than 110 countries entering into FATCA agreements of the US, coupled by the fact that there are more than 300,000 foreign financial institutions actively reporting account holder information to the IRS – the chances of staying below the radar has reduced significantly.
Getting Into Compliance – IRS Offshore Disclosure
If you are already out of IRS compliance and are not under audit or examination by the IRS you may qualify for one of the approved offshore voluntary disclosure programs or a reasonable cost statement, and have your IRS penalties reduced, or possibly waived.
Golding & Golding, A PLC
We have successfully represented clients in more than 1000 streamlined and voluntary disclosure submissions nationwide, and in over 70-different countries.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe.