The H1B & L1 Residency Guide: When Does Your Global Income Become Taxable?
For visa holders, “residency” is a double-edged sword. In the eyes of USCIS, you are a non-immigrant. But in the eyes of the IRS, you can become a Resident Alien very quickly.
At KKCA, the most common question we heard in 2025 was: “I’m only here on a temporary work visa, so why does the IRS want to know about my bank interest in India or my rental property in London?”
The answer lies in the Substantial Presence Test (SPT).
1. The Substantial Presence Test (The 183-Day Rule)
You are considered a U.S. resident for tax purposes if you pass this two-part test in 2025:
- You were physically present in the U.S. for at least 31 days during 2025.
- You were present for 183 days over a 3-year period, calculated as follows:
- All the days you were present in 2025.
- 1/3 of the days you were present in 2024.
- 1/6 of the days you were present in 2023.
2. The F1 Student Exception
If you are on an F1 or J1 Student Visa, you are generally an “Exempt Individual.” This doesn’t mean you don’t pay tax; it means you do not count your days toward the 183-day residency test for your first 5 calendar years.
- The Catch: Even if you have $0 income, you MUST file Form 8843 to explain why you are excluding those days.
- After 5 Years: You begin counting days and typically become a Resident Alien, requiring you to report your global assets.
3. What Happens When You Become a “Resident”?
The moment you pass the SPT, the IRS treats you exactly like a U.S. citizen for tax purposes. This triggers three major requirements:
- Worldwide Income: You must report every cent earned globally—even if that money never enters a U.S. bank account.
- FBAR Reporting: If your foreign bank accounts (India, UK, Canada, etc.) total more than $10,000 at any time, you must disclose them.
- PFIC Disclosure: Those Indian mutual funds or European ETFs we discussed in [Blog #1] must now be reported on Form 8621.
4. The “First-Year Choice” & Dual-Status Returns
If you arrived in the U.S. mid-way through 2025 (e.g., August), you might not meet the 183-day test by December 31. This creates a Dual-Status Year.
- Part 1 (Non-Resident): Taxed only on U.S. income.
- Part 2 (Resident): Taxed on worldwide income.
Pro Tip from KKCA: If you are married, you can often elect to be treated as a resident for the entire year. This allows you to file a Joint Return, which typically results in a much lower tax rate and a higher standard deduction.
5. Avoiding the $100,000 Fee Panic
In late 2025, news of a proposed $100,000 H1B petition fee caused waves of anxiety. While this primarily affects employer costs and legal filings, the IRS has increased its scrutiny on visa holders’ tax records as part of the visa renewal and “Golden Visa” vetting processes. A clean tax record is now a vital part of your immigration story.
KKCA Check-In:
Did you move to the U.S. in 2025? Or has your 5-year F1 exemption recently expired?
- Don’t wait until April 15 to find out you’ve accidentally become a worldwide taxpayer.
- Avoid Penalties: We help visa holders navigate treaty benefits to reduce U.S. tax on foreign income.
Looking for personalized tax services about your specific tax situation, please contact us. We are here to help you with your specific tax matters.
Disclaimer
This blog is intended for informational purposes only and does not constitute legal or tax advice. Please consult a qualified U.S. CPA or tax attorney for guidance specific to your situation.