In your first full calendar year as a US resident on an H-1B, you are taxed like a US citizen: on your income from every country, with foreign accounts and assets reported alongside the return. The year you arrived or changed status was a split year. This one is not. Most first year mistakes are not errors in the return. They are things left off because nothing prompted them.
Why this year is different
An H-1B holder is not an exempt individual, so every day in the US counts toward the substantial presence test: at least 31 days in the year, and 183 days over three years counting all of this year’s days, a third of last year’s, and a sixth of the year before.
Someone who has been here since the previous year meets that test from January 1. So the first full year is the first year with no nonresident part: a full year resident return, a standard deduction, and worldwide income from the first day. The transition year itself is covered in F-1 to H-1B: the year your status changes.
Everything is now in
As a full year resident, everything is taxed and reported:
- Worldwide income: rent, interest, dividends and gains from home, as well as your US salary. Why income that never leaves home is still taxable is covered in foreign income after you become a US resident.
- Foreign tax paid, which usually becomes a credit, set out in the foreign tax credit on Form 1116.
- Foreign accounts and assets, reported separately from the tax.
The omission we see most
The most common first year omission is the foreign accounts. The FBAR and Form 8938 are missed because nothing prompted them. The salary account at home, a fixed deposit, and an account shared with a parent do not feel like anything to report.
The FBAR is required once the combined value of foreign accounts passes 10,000 dollars at any time in the year, and it is filed with FinCEN, not with the return. Form 8938 is filed with the return at higher thresholds. The two filings, and what each covers, are set out in FBAR and Form 8938.
What to decide in January
Three things are easier to settle at the start of the year than at the end of it.
Foreign mutual funds. Funds bought at home are usually treated as passive foreign investment companies, with harsh tax treatment and a separate Form 8621 for each fund. What to do with them is worth deciding early, before another year of growth is inside them.
Tracking foreign income. Interest and rent credited abroad through the year are easy to forget. A simple record kept monthly, in the foreign currency with the date, makes the return far easier.
Withholding. Your employer withholds on your salary only. If foreign income or a second job adds to the total, the withholding may not cover it, and the shortfall arrives in April. Adjusting the W-4, or making estimated payments, fixes that during the year. How estimated payments are sized is covered in quarterly estimated payments.
If your spouse is on an H-4
A spouse on an H-4 changes two things.
The joint return question. A spouse who meets the substantial presence test is a resident too, and a joint return is usually the better choice. A spouse who arrived later in the year may be a nonresident for part of it, and the couple may be able to choose to treat them as a resident for the whole year and file jointly. That brings the spouse’s worldwide income into the return, so both versions need working out. The trade offs are covered in married filing jointly or separately.
An identification number. A spouse without an SSN, because they are not authorized to work, needs an ITIN to be named on a joint return. How that application works is set out in what an ITIN is, and how to apply with Form W-7.
A short checklist for the first full year
- List every foreign account, with its highest balance during the year.
- Record foreign income monthly, with the tax paid on it.
- Decide what to do about foreign funds.
- Check your W-4 against your total income, not just your salary.
- Settle your spouse’s status and identification number before filing season.
Preparing the first full resident return, and the reporting that goes with it, is what the international service is for.