The label matters. It decides whether you file Form 1040 or Form 1040-NR, whether the IRS taxes your worldwide income or only your U.S.-connected income, which deductions you can claim, and whether foreign account reporting applies. That last point catches many Australians off guard when they keep savings or super back home.
This guide covers the IRS residency tests, the day-count maths, first-year and dual-status situations, and worked examples. Figures are for tax year 2025 (returns due in 2026). Confirm everything against current IRS sources before you file.
Key Takeaways
- H-1B status alone never decides tax residency; IRS tests do.
- Most H-1B workers are tested under the Substantial Presence Test.
- Residents generally file Form 1040 on worldwide income; nonresidents generally file Form 1040-NR.
- Late arrivals, F-1 to H-1B changes and heavy travel can produce dual-status years.
- FICA payroll taxes apply to H-1B wages whatever your income-tax status.
Resident vs Nonresident Alien for H-1B Holders
What is a resident alien for tax purposes?
A resident alien meets either the Green Card Test (lawful permanent resident at any time in the year) or the Substantial Presence Test. An H-1B holder remains a nonimmigrant under immigration law yet can still be a tax resident.
Resident status generally means:
- Worldwide income is reportable, including salary, rent, interest and dividends from Australia or elsewhere
- Form 1040 is the usual return
- Foreign accounts and assets may trigger FBAR or Form 8938 reporting
What is a nonresident alien for tax purposes?
A nonresident alien is a non-citizen who meets neither test, subject to exceptions and elections. This typically describes a new arrival or short-term H-1B worker.
Nonresidents are generally taxed on U.S.-source income and income effectively connected with a U.S. trade or business. Pay for work performed in the United States is generally effectively connected income, taxed at graduated rates.
That wage income is not subject to a blanket 30% rate. The 30% rate applies to certain passive U.S.-source income such as FDAP (for example interest and dividends), unless a treaty lowers it.
Quick comparison
| Issue | Resident alien | Nonresident alien |
|---|---|---|
| Test | Green Card or Substantial Presence | Meets neither test |
| Federal return | Generally Form 1040 | Form 1040-NR, if required |
| Income scope | Worldwide during the resident period | Generally U.S.-source or effectively connected |
| Standard deduction | Generally available | Generally unavailable (narrow U.S.-India student/apprentice treaty exception) |
| Filing status | Normal resident rules | Generally single or married filing separately |
| Dependents | Normal rules | Restricted to specific categories |
| Foreign reporting | FBAR/Form 8938 may apply | Depends on status and thresholds |
This is a general framework. Neither status is automatically cheaper. Check current IRS instructions for your year.
How the IRS Determines H-1B Tax Residency
The Green Card Test and Substantial Presence Test
The IRS treats you as a resident if you are a lawful permanent resident at any time during 2025. An immigration pathway toward permanent residence does not create tax residency on its own. Most H-1B holders are tested only under the Substantial Presence Test, unless they separately obtain permanent residence.
How the Substantial Presence Test is calculated
Under the IRS substantial presence test, you must meet both of these:
- Be present in the U.S. at least 31 days in the current year
- Reach 183 weighted days across a three-year period
The weighted count is all current-year days, plus one-third of the prior year's days, plus one-sixth of the year before that.
The IRS's own example: 120 days in each of 2023, 2024 and 2025 gives 120 + 40 + 20 = 180 weighted days. That person does not meet the test for 2025.
Which days count, and which may be excluded?
H-1B is not an exempt-individual category, so physical-presence days count unless another exclusion applies. Recognised exclusions include:
- Days commuting regularly to U.S. work from a residence in Canada or Mexico
- Days in transit under 24 hours between two foreign places
- Days you could not leave because of a medical condition that arose while in the U.S. (Form 8843 carries the physician certification)
- Qualifying F-1 and J-1 exempt-individual days
Even if you pass the weighted test, a closer connection exception may keep you a nonresident. To claim it you need:
- Fewer than 183 actual days in the year
- A foreign tax home and a closer foreign connection
- Form 8840 filed on time
Pending permanent-residence applications can disqualify the claim.
F-1 to H-1B transitions
F-1 exempt days do not count toward the test. Once you move to H-1B, days count. Prior F-1 days must be analysed under the exemption rules, not automatically counted or ignored. Exemption ends for F-1 students after more than five calendar years unless extra IRS conditions are met; this is not a rolling five-year allowance.
Watch three things in a transition year:
- The exact status-change date
- How many prior years were exempt
- Whether you land in a dual-status year
Form 8843 documents exempt days, even when no income tax return is otherwise required.
Records to keep
- Passport stamps, I-94 history and travel calendars
- Visa and status documents
- Forms W-2 and 1099, plus foreign income records
- Prior-year tax returns
CBP provides your latest I-94 and up to 10 years of travel history, but warns it can be incomplete. Your own calendar fills the gaps and supports your residency calculation, treaty claim or any IRS query.
H-1B Tax Return Filing Consequences
Resident alien filing requirements
Residents generally file Form 1040 and report worldwide income. For 2025, a single filer under 65 generally must file when gross income reaches $15,750 (married filing jointly, both under 65: $31,500). Dependents and special triggers follow separate rules.
Residents generally use standard resident deductions, credits and filing-status options. Head of household requires resident status throughout the year.
Nonresident alien filing requirements
Nonresidents file Form 1040-NR. The 2025 deadline is April 15, 2026 if you received wages subject to U.S. withholding, or June 15, 2026 otherwise. Engaging in a U.S. trade or business can create a filing duty even without taxable income.
Restrictions to expect:
- No standard deduction in most cases
- Filing status limited to single or married filing separately
- Dependents limited to U.S. nationals, qualifying residents of Canada, Mexico or South Korea, or eligible Indian students and business apprentices
Treaty positions vary by country and income type. Form 8833 discloses specified treaty claims, such as a residence tie-breaker.
Dual-status tax years
A mid-year arrival or departure can make you a nonresident for one part of the year and a resident for the other. You report worldwide income for the resident period and generally U.S.-source or effectively connected income for the other.
If you are a resident at year-end, you file Form 1040 marked "Dual-Status Return" with a nonresident-period statement. If you are a nonresident at year-end, file Form 1040-NR with a resident-period statement. Generally there is no standard deduction, even for the resident portion, and no joint return unless an election applies.
The IRS's 2025 instructions exempt dual-status returns from mandatory preparer e-filing, but that is not a blanket paper-only rule.
Payroll, federal, state and local taxes
Income-tax residency and payroll tax are separate. Social Security and Medicare taxes generally apply from the first day of H-1B employment, whatever your income-tax status. A treaty exemption from income tax does not itself remove FICA. Totalization agreements can prevent dual Social Security coverage, and a certificate of coverage proves the exemption.
State rules are separate again:
- California: residents are generally taxed on worldwide income; federal treaty exemptions generally do not apply unless the treaty covers California tax
- New York: domicile, or a permanent place of abode for substantially all the year plus 184 or more days; New York City residents face a city income tax on income from all sources
Your annual return reconciles what was withheld against what you owe. Visa status does not set one tax rate.
Foreign income and account reporting
Resident status brings foreign income into the return and can trigger separate reports.
| Requirement | 2025 threshold |
|---|---|
| FBAR | Aggregate foreign accounts over $10,000 at any time |
| Form 8938 (living in U.S.) | Single: over $50,000 at year-end or $75,000 at any time |
| Form 8938 (joint) | Over $100,000 / $150,000 |
Both thresholds are in U.S. dollars, so convert Australian balances at the applicable rate. FBAR and Form 8938 are separate filings; neither substitutes for the other. Form 8938 is not required if no income-tax return is required.
Penalties are steep: an initial $10,000 for Form 8938, and FBAR non-wilful penalties up to $16,536 per report.
Resident aliens can generally claim a foreign tax credit on Form 1116 for eligible foreign income taxes, limited by the U.S. tax on foreign-source income. Treaties and source rules may also reduce double taxation, but eligibility is fact-specific and disclosure rules apply.
Decision Guide and Practical Examples
How to decide which status likely applies
- Check whether the Green Card Test applies
- Count your days under the current Substantial Presence Test
- Review exclusions, the closer connection exception and treaty positions
- Check whether first-year choice or a dual-status year applies
- File the matching Form 1040 or 1040-NR
Do not file based on visa type alone. Get a professional review when the count is close, travel is heavy, or foreign income and assets are involved.
Situational examples
These come from published IRS examples. They are illustrations, not personal advice.
| Scenario | Facts | Result to investigate | Forms |
|---|---|---|---|
| Late-year arrival | First arrives November 1, 2025; IRS calculates 46/61 days = 75.4% for the first-year choice test | With 2026 presence also met, residence can start November 1, 2025 | Form 1040 with first-year choice statement |
| Full-year worker | Arrives August 15, 2024; 139 days in 2024, 365 in 2025 | 2024 nonresident (or first-year choice); resident from January 1, 2025 | 1040-NR or 1040 for 2024; 1040 for 2025 |
| Exemption expiry | Arrives August 15, 2020; five exempt years 2020-2024; 365 days in 2025 | Resident from January 1, 2025 | Form 8843 for exempt years; Form 1040 for 2025 |
| Time abroad and return | Leaves June 30, 2023 after F-1; returns August 1, 2024 as J-1 researcher; 153 days in 2024 | Meets weighted test despite under 183 actual days; resident from August 1, 2024 | Dual-status return |
For F-1 to H-1B conversions, the IRS has no separate numeric example, so the exemption-ending rules above apply.
For a worker spending long periods abroad, test the closer connection exception, which uses actual days, not weighted days.
Real-world case study
A TIGTA review of tax year 2018 (Report 2021-40-057) found 50,297 returns suggesting likely nonresident aliens had used the wrong form. They received more than $83.7 million in refundable credits they may not have been entitled to.
These are potential errors, not adjudicated losses, and the group was not H-1B-specific. The findings still show how closely the IRS watches classification and form choice.
Practical takeaway
Count days, check exceptions, then pick the form.
VJM Global prepares U.S. Form 1040 and Form 1040-NR returns and works on treaty claims, Form 8938 reporting and cross-border income documentation. That helps H-1B holders, including those with Australian income or accounts, organise their records and assess U.S. compliance.
It does not promise a refund or an immigration result.
Conclusion
An H-1B holder is not automatically a resident or nonresident alien for tax purposes. The answer turns on the IRS tests, physical presence, exclusions, treaty positions and the facts of the year.
Residents generally use Form 1040 and report worldwide income. Nonresidents generally use Form 1040-NR for U.S.-connected income. Check Publication 519 for the current year, or speak with a qualified tax professional before you file.
Frequently Asked Questions
What taxes do H-1B visa holders pay in the USA?
Federal income tax, Social Security and Medicare payroll taxes, and any applicable state and local income taxes. Your filing and reporting duties depend on tax residency and personal circumstances.
How do I know if I am a resident alien?
You are a resident if you pass the Green Card Test or the Substantial Presence Test. Count your physical-presence days using current IRS rules.
What is the substantial presence test in the US?
You need 31 days in the current year and 183 weighted days across three years (all current days, one-third of last year's, one-sixth of the year before). Exclusions and exceptions may apply.
Is H-1B a non-immigrant visa?
Yes. USCIS classifies H-1B as a nonimmigrant work category. You can still become a resident alien for tax purposes.
Which tax form should an H-1B holder file: Form 1040 or Form 1040-NR?
Resident aliens generally file Form 1040, and nonresident aliens generally file Form 1040-NR. Dual-status and treaty situations need extra review.
Can an H-1B holder have a dual-status tax year?
Yes. It can arise when residency changes mid-year, such as after a mid-year arrival or departure. Income must be allocated between the resident and nonresident periods.
