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Nonresident & Visa Tax

Nonresident Alien & Visa Holder Tax: H-1B, F-1, OPT, Dual-Status Returns, and Pre-Immigration Planning for Bay Area Residents

Updated June 2026 · 15 min read

The Bay Area has the largest concentration of H-1B visa holders in the United States. Apple, Google, Meta, Nvidia, and their contractor ecosystems collectively sponsor tens of thousands of visa workers in Santa Clara County alone. Every one of those workers faces a US tax situation that most CPAs and most tax software are not designed to handle. A software engineer from India who arrived on H-1B in March of last year files a dual-status return that year, one of the most technically demanding returns in the individual tax code. Their spouse, present on an H-4 visa without a Social Security number, cannot be claimed as a dependent or listed on a joint return without an ITIN that requires certified passport documents and a Form W-7 submission. Their RSUs that vested during the year need a sourcing allocation going back to the original grant date, before they arrived, to correctly determine which portion of the income is US-source. And if they came from India, the US-India treaty may affect how certain income is characterized.

This is not an edge case. It is the normal situation for hundreds of thousands of Bay Area tech workers, and it requires a tax advisor who prepares these returns regularly. Silicon Valley Tax, led by Cooper Hathaway and Alfonso Nuñez, CPA/JD, handles nonresident alien and visa holder tax compliance for clients across the full spectrum of immigration status. Our office is at 2051 Junction Ave, San Jose CA 95131. Call (408) 383-9870 or book a complimentary consultation online.

H-1B and L-1 Visa Holders: Dual-Status Returns and FICA

An H-1B or L-1 worker who arrives in the US becomes a resident alien for tax purposes the moment they meet the substantial presence test under IRC Section 7701(b): at least 31 days present in the current year, plus a weighted three-year total of at least 183 days (counting all current-year days, one-third of prior-year days, and one-sixth of days from two years prior). For most H-1B workers who arrive mid-year, the substantial presence test is not met until the following calendar year. That means the year of arrival produces a dual-status return: a nonresident alien period from January 1 (or the date of first US entry) through the last day before the residency start date, and a resident alien period from the residency start date through December 31.

During the nonresident period, only US-source income is taxable in the US. During the resident period, worldwide income is taxable. The dual-status return is filed on Form 1040 (covering the resident period) with a Form 1040-NR attached as a statement for the nonresident period. Standard deductions are not available for the nonresident period. The personal exemption deduction historically available to nonresidents was suspended starting in 2018 by the TCJA, and the One Big Beautiful Bill Act of 2025 made that suspension permanent. Income must be allocated between periods based on when it was earned, not when it was paid.

FICA (Social Security and Medicare) withholding applies once an H-1B worker is classified as a resident alien. Prior to that, a nonresident alien on H-1B is also subject to FICA. H-1B holders are not exempt from FICA at any point, in contrast to F-1 and J-1 student visa holders. Employers sometimes incorrectly treat H-1B workers as FICA-exempt, particularly in the arrival year. Correcting over-withheld or under-withheld FICA requires coordination with the employer and, where the employer will not cooperate, filing Form 843.

The departure year produces the mirror-image dual-status return. An H-1B worker who leaves the US permanently in August of a given year is a resident alien from January 1 through the date of departure, then a nonresident alien for the remainder of the year. Treaty tie-breaker provisions may alter the residency classification where the worker maintains a permanent home in both countries.

F-1 and J-1 Students and Exchange Visitors: FICA Exemption and Treaty Elections

F-1 students and J-1 exchange visitors are classified as exempt individuals under IRC Section 7701(b)(5)(A) and do not count days of US presence toward the substantial presence test during their exempt period. For F-1 students, the exempt period is five calendar years. For J-1 exchange visitors, the exempt period is two of the preceding six calendar years (or, for students, the same five-year rule that applies to F-1). This means that an F-1 student who arrived in 2021 and remains in the US through 2025 is a nonresident alien for each of those years and files Form 1040-NR, regardless of how many days they are physically present.

The FICA exemption under IRC Section 3121(b)(19) applies to nonresident alien students and exchange visitors in F-1 and J-1 status. Wages paid to an F-1 student who is still a nonresident alien are exempt from Social Security and Medicare withholding. This exemption is significant for students on campus employment and for OPT workers in their nonresident alien years. Once the F-1 student transitions to H-1B and becomes a resident alien under the substantial presence test, the FICA exemption ends and withholding begins.

Several major tax treaties provide specific exemptions for students and trainees. The China-US treaty, Article 20, exempts from US tax the wages, salaries, stipends, grants, and remittances received by Chinese students and trainees during a period not exceeding five tax years, provided the income comes from outside the US or is necessary for maintenance, study, or training. The Korea-US treaty, Article 21, provides an equivalent exemption for Korean students. The India-US treaty, Article 22, covers scholarships and fellowship grants received by Indian students and trainees. Germany, France, the Netherlands, and many other treaty partners have analogous student articles. Treaty positions must be claimed by filing Form 8833 (Treaty-Based Return Position Disclosure Under an Income Tax Treaty) and must be supported by documentation of treaty-country residency and student status. We identify applicable treaty articles for each client and prepare the required disclosures.

OPT to H-1B to Green Card: The Transition Years

The sequence from F-1 OPT through H-1B to permanent residency produces a series of tax status transitions that need to be tracked precisely, because getting a status year wrong means either paying too much tax (by filing as a resident alien when nonresident status applies) or too little (by filing as a nonresident when resident status has already been triggered).

An F-1 student on OPT is typically still a nonresident alien under the exempt-individual rules. When that student's H-1B begins, usually October 1 of the cap-subject year, the substantial presence test clock starts. For the H-1B start year, the worker is often still a nonresident alien (having just begun accumulating days), files Form 1040-NR, and continues to be FICA-exempt for the portion of the year before H-1B status began. By the following calendar year, the substantial presence test is almost always met and the worker becomes a resident alien.

When a green card is issued, the worker becomes a resident alien (or confirms existing residency) under IRC Section 7701(b)(1)(A) regardless of physical presence. Green card holders are resident aliens for all purposes and file Form 1040 reporting worldwide income. The green card start date is the date it is approved, not the date of physical receipt. For individuals who received their green card while already in the US on H-1B and already resident aliens under the substantial presence test, the green card issuance does not change their tax filing for that year. The significance of the green card is that it continues US residency even when the holder leaves the country for extended periods that would otherwise break substantial presence.

The Section 6013(g) and 6013(h) elections allow certain nonresident alien spouses and dual-status individuals to elect to file jointly as US residents for the entire year. Section 6013(g) applies where one spouse is a nonresident alien for part or all of the year and the other spouse is a US citizen or resident alien. The election treats both spouses as resident aliens for the full year, allowing a joint return with the standard deduction. This is often advantageous where one spouse has little or no income and the other would otherwise file as married filing separately (the least favorable filing status). The Section 6013(g) election is irrevocable and binds both spouses to US resident taxation on their worldwide income, including any foreign-source income of the nonresident alien spouse. We analyze the Section 6013(g) election for every dual-status couple and compare it to the alternative dual-status filing approach.

Form 1040-NR vs. Form 1040: Filing the Right Return

Filing the wrong return form creates a deficient return that does not suspend the statute of limitations and can trigger penalties. The threshold question for every nonresident and visa holder tax engagement is determining which form applies.

Form 1040-NR applies to individuals who are nonresident aliens under IRC Section 7701(b) and who have US-source income not fully covered by withholding. Income of nonresident aliens falls into two buckets. The first bucket is income effectively connected with a US trade or business (ECI), taxed at graduated rates on the net amount. Wages from US employment are always ECI. Business income from a US operation is ECI. The second bucket is fixed, determinable, annual, or periodical income (FDAP) from US sources: dividends, interest, rents, royalties, and similar passive receipts. FDAP is subject to US withholding at 30%, reduced by treaty, and is generally not reported on the tax return if the withholding was done correctly by the payor.

Form 1040 applies to US citizens and resident aliens reporting worldwide income. A resident alien has the same filing obligations as a US citizen: worldwide income, ability to take the standard deduction, ability to claim most credits, and access to all ordinary deductions. The only residency-related restriction is that certain credits phase out or have different rules for taxpayers who were nonresident for part of the year.

Dual-status returns use Form 1040 for the resident period and attach Form 1040-NR as a supporting statement for the nonresident period. A separate Form 1040-NR cannot be filed as a standalone return for the nonresident period of a dual-status year; it functions only as an attachment. The computations on the two forms do not interact directly; income is segregated and each period's tax is computed separately under that period's rules.

US Tax Treaty Elections and Form 8833

The US has income tax treaties with over 65 countries. For Bay Area nonresident aliens and visa holders, the most frequently invoked treaties are with India, China, South Korea, the United Kingdom, Germany, Japan, and the Philippines. Treaty provisions can reduce or eliminate US tax on specific categories of income, alter the definition of residency, provide tie-breaker rules for dual residents, and exempt certain types of employment income for limited periods.

The India-US treaty (in force since 1996) has articles covering dividends (Article 11, generally 25% treaty rate, not a significant reduction from 30% FDAP for most visa holders), interest (Article 12), royalties and fees for technical services (Article 13, 15% treaty rate), independent personal services (Article 15), dependent personal services (Article 16), and students and trainees (Article 22). One important provision for Indian tech workers is Article 16(1), which exempts from US tax compensation of Indian residents for services performed in India, a provision that matters during the OPT and H-1B transition years when some services may technically be rendered in India.

The China-US treaty (Protocol of 1986, as amended) has Article 19 covering government employees and Article 20 covering students and trainees with broad exemptions for compensation during training periods. Article 7 of the China-US treaty covers business profits, and Article 14 covers independent personal services. For Chinese F-1 students and J-1 exchange visitors, Article 20 is often the primary treaty provision and provides the most significant benefit: full exemption from US tax on wages and stipends for up to five tax years from the date of arrival.

The UK-US treaty (2001) contains a comprehensive saving clause in Article 1(5) that allows the US to tax its citizens and residents as if the treaty did not exist in most cases. The saving clause limits the benefit of the UK-US treaty for US resident aliens from the UK, though some articles survive the saving clause, including the pension and social security articles. For British nationals on H-1B who are resident aliens, the saving clause means most treaty benefits are not available, and the primary treaty benefit is typically the tie-breaker provision for periods when dual residency status exists.

Taking a treaty position on a return requires disclosure on Form 8833 if the position reduces or eliminates any US tax otherwise due. The exception is where the treaty provision is directly claimed on the face of the return (such as the FDAP withholding exemption claimed by submitting Form W-8BEN to the payor). We prepare Form 8833 disclosures for every treaty position we take and maintain the required documentation in the client's file.

NRA Withholding and Form W-8BEN

A nonresident alien who receives US-source FDAP income is subject to 30% withholding at source under IRC Section 1441 unless a treaty reduces that rate. The payor (a US bank, brokerage, or employer) is the withholding agent and is responsible for withholding and remitting the correct amount to the IRS. The nonresident alien does not generally need to file a return to pay FDAP tax that was correctly withheld; the withholding is the final tax obligation.

To claim a reduced treaty rate, the nonresident alien must provide the withholding agent with Form W-8BEN (Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting). Form W-8BEN certifies the recipient's foreign status and treaty country of residence and specifies the applicable treaty article and rate. Without a valid W-8BEN on file, the withholding agent must withhold at 30%. W-8BEN forms expire after three years and must be renewed. If the treaty country of residence changes, a new W-8BEN must be filed immediately.

For nonresident aliens with US bank accounts or brokerage accounts, providing a valid W-8BEN to the financial institution establishes the correct withholding rate on interest and dividends. For US interest paid to nonresident aliens, the portfolio interest exemption under IRC Section 871(h) may fully exempt the interest from US withholding (for arm's-length lending that meets the exemption's conditions). Investment income from US mutual funds, REITs, and ETFs is also FDAP income subject to withholding, though capital gains distributions may have different treatment depending on treaty provisions.

ITIN Applications: W-7, Passport Certification, and the CAA Route

A taxpayer who is required to file a US return but does not have and is not eligible for a Social Security number must obtain an Individual Taxpayer Identification Number (ITIN) by filing Form W-7 with the IRS. The ITIN is issued only for federal tax filing purposes and cannot be used for employment authorization, Social Security benefits, or state identification. ITINs issued after 2012 expire after five years of non-use (after the year in which they were issued, if not used on a return for three consecutive years).

The most common ITIN needs in a visa holder practice are:

A nonresident alien spouse who needs to be listed on a Form 1040 as a dependent or who needs to join a joint return under a Section 6013(g) election
A nonresident alien student who must file Form 1040-NR but does not have a Social Security number from a campus job
A foreign person receiving US rental income or other FDAP income who must file to claim a refund of over-withheld amounts
A dependent child who is a nonresident alien and cannot be claimed on a tax return without an ITIN

Form W-7 requires proof of foreign status and identity, typically an original passport or a certified copy. The IRS accepts certified copies from foreign government authorities, certain US embassies, and Certifying Acceptance Agents. A Certifying Acceptance Agent (CAA) is an individual or entity authorized by the IRS under Revenue Procedure 2013-14 to certify original identity documents on behalf of the IRS, allowing the applicant to avoid mailing their original passport. We are an authorized Certifying Acceptance Agent and can certify passport documents in our San Jose office. The ITIN application is filed with the tax return (or, where the return is not yet due, attached to a standalone W-7 with a required explanation). Processing typically takes seven to eleven weeks. Expedited processing is available in limited circumstances through an IRS Taxpayer Assistance Center.

Foreign Tax Credit vs. Foreign Income Exclusion for Visa Holders

A US resident alien who pays foreign income tax on foreign-source income has two potential mechanisms to avoid double taxation: the foreign tax credit under IRC Section 901 (claimed on Form 1116) and the foreign earned income exclusion under IRC Section 911 (claimed on Form 2555). The two cannot be applied to the same income in the same year, and the choice between them can produce materially different tax outcomes.

The foreign earned income exclusion under Section 911 excludes up to $130,000 (2025, indexed for inflation) of foreign earned income from US taxable income for US citizens and resident aliens who meet either the bona fide residence test or the physical presence test. The physical presence test requires at least 330 full days in a foreign country during any consecutive 12-month period. Most H-1B and L-1 visa holders who are in the US working for US employers will not meet the physical presence test or bona fide residence test during their visa period. The Section 911 exclusion is generally not available for Bay Area tech workers on H-1B who occasionally travel internationally for work. It becomes relevant in the departure year if the taxpayer leaves the US permanently and spends 330+ days abroad.

The foreign tax credit under Section 901 is the primary mechanism for Bay Area visa holders who pay foreign taxes. The credit is limited by Section 904 to the ratio of foreign-source income to total income, times the US tax liability. For visa holders with foreign investment income, foreign rental income, or Indian EPF/PPF contributions that are treated as currently taxable in the US, the foreign tax credit computation requires separating income into the general limitation basket and the passive income basket and applying the limitation calculation to each. Excess credits carry forward ten years. For an H-1B worker who also has Indian rental income and pays Indian tax on that income, the Form 1116 credit can eliminate or nearly eliminate the US tax on that Indian-source income, subject to the limitation calculation and the ordering rules for credits against passive versus general income.

Streamlined Disclosure for Prior Non-Compliance

A nonresident alien or recent green card holder who did not file required US returns in prior years, failed to report worldwide income after becoming a resident alien, or failed to file FBARs for foreign accounts has several paths back into compliance depending on the nature and willfulness of the non-compliance.

The IRS Streamlined Filing Compliance Procedures, described in detail on our FBAR and international tax page, are the primary path for taxpayers who non-willfully failed to meet their US tax and reporting obligations. The Streamlined Domestic Offshore Procedures (for US residents) require filing amended returns for the three most recent years and FBARs for six years, paying back tax and interest, paying a 5% miscellaneous penalty on the highest aggregate foreign account balance, and certifying non-willfulness. The Streamlined Foreign Offshore Procedures (for taxpayers who were abroad during the non-compliance period) carry no penalty.

For visa holders who were classified as nonresident aliens for prior years but failed to file Form 1040-NR on US-source income, the path back into compliance is simpler: file late Forms 1040-NR for the open years (generally three years for a refund, but open indefinitely for a liability). Late-filing penalties apply but can be abated for reasonable cause. For an F-1 student who had only FICA-exempt wages covered by withholding and no other US income, the prior-year 1040-NR filings may show no additional tax due and may actually result in a refund of over-withheld amounts. We assess each client's prior-year exposure before recommending a remediation path.

Pre-Immigration Tax Planning for Incoming HNW Residents

For a high-net-worth individual from India, China, Hong Kong, Singapore, or South Korea who is about to become a US tax resident for the first time, the moment the substantial presence test is met (or the green card is issued) is the moment worldwide taxation begins. Assets that have appreciated in value in a home country and have never been subject to US capital gains tax become fully exposed to US taxation on disposition after that date. Foreign trusts that were not grantor trusts under foreign law may be treated as grantor trusts or foreign trusts under IRC Sections 671-679 once the grantor becomes a US resident. Offshore insurance wrappers that provided tax-deferred growth in the home country may be treated as PFICs or as modified endowment contracts under the US rules.

Planning must be completed before the residency start date. The most impactful pre-immigration strategies depend on the client's specific asset mix, but common elements include:

Accelerating recognition of foreign capital gains before the residency start date to reset the cost basis for US purposes. A sale and repurchase of appreciated foreign securities before becoming a US resident locks in the foreign cost basis and eliminates the US capital gains exposure on the pre-immigration appreciation, at the cost of any applicable foreign capital gains tax.
Reviewing controlled foreign corporation exposure under IRC Sections 951 and 951A. A foreign national who owns more than 10% of a foreign corporation that will become a CFC upon US residency should evaluate whether to restructure ownership, make a check-the-box election to treat the entity as a disregarded entity, or model the GILTI inclusion and foreign tax credit offset before the residency start date.
Valuing and electing on foreign retirement accounts. Some foreign country retirement accounts can be included on Form 8833 as pension arrangements entitled to treaty-based deferral (Canadian RRSPs, UK SIPPs). Others have no treaty protection and are treated as ordinary investment accounts once US residency begins. Establishing the fair market value on the last day before residency provides a documented basis for reporting.
Evaluating trust structures. A foreign family trust created before US residency may become a foreign grantor trust under IRC Section 679 once the grantor becomes a US resident, requiring annual information reporting on Forms 3520 and 3520-A and possible current inclusion of trust income. Pre-immigration restructuring can sometimes convert the trust to a non-grantor trust with a stepped-up basis at the residency start date.
Receiving pre-immigration gifts and inheritances. Large gifts or inheritances received before US residency are generally not subject to US income tax (though they may be subject to gift tax in the foreign country). After US residency begins, large gifts received from foreign persons must be reported on Form 3520 and could trigger additional scrutiny. Timing major wealth transfers before the residency start date removes them from US reporting requirements.

Pre-immigration planning for HNW clients from India and China requires particular attention to treaty positions, home-country exit taxes, and the timing of asset dispositions in light of both US and home-country rules. We work with international tax counsel in the relevant home countries where cross-border coordination is needed.

Our Nonresident Alien Tax Services at a Glance

Dual-status returns for the year of arrival and year of departure from the US
Form 1040-NR preparation for F-1, J-1, OPT, and other nonresident alien filers
Section 6013(g) and 6013(h) elections for nonresident alien spouses
FICA exemption analysis and Form 843 claims for incorrectly withheld Social Security and Medicare taxes
Tax treaty elections with Form 8833 disclosure for India, China, Korea, UK, Germany, Japan, and other treaty partners
ITIN applications via Form W-7, including CAA passport certification in our San Jose office
Form W-8BEN preparation and withholding rate analysis for US-source FDAP income
Substantial presence test analysis and residency start date determination
RSU sourcing allocations for grants spanning US and foreign employment periods
Foreign tax credit analysis on Form 1116 for residents with foreign-source income
Streamlined filing procedures for prior years of non-compliance
Pre-immigration tax planning for incoming HNW residents from India, China, Hong Kong, Singapore, and South Korea

Frequently Asked Questions

Do H-1B holders pay FICA taxes?

Yes. H-1B workers are subject to FICA withholding once they meet the substantial presence test and become resident aliens under IRC Section 7701(b). Unlike F-1 and J-1 students, H-1B holders have no FICA exemption under IRC Section 3121(b)(19). Employers who incorrectly exempt H-1B workers from FICA create a payroll tax liability. Conversely, employers who withhold FICA from F-1 students who are still nonresident aliens have over-withheld; those employees can recover the excess by filing Form 843 if the employer does not correct it.

When does the substantial presence test trigger US tax residency?

The substantial presence test under IRC Section 7701(b) is met when a foreign national is present in the US for at least 31 days in the current year and a weighted three-year total of at least 183 days. F-1 and J-1 visa holders are exempt from counting days for up to five calendar years, so they typically do not meet the test during their student period. H-1B workers begin counting days from their first day in H-1B status. Most H-1B workers become resident aliens on January 1 of the calendar year following their arrival year.

Can my F-1 visa spouse get an ITIN?

Yes. An H-4 or other nonresident alien spouse without a Social Security number can obtain an ITIN through Form W-7. The application requires certified proof of foreign identity, typically a certified passport copy. As an authorized Certifying Acceptance Agent, we can certify original passport documents in our San Jose office, avoiding the risk of mailing original documents to the IRS. An ITIN allows the spouse to be listed on a joint return, to be claimed as a dependent, or to make a Section 6013(g) election to file jointly as resident aliens.

What is a dual-status tax return?

A dual-status return covers a year in which a taxpayer was a nonresident alien for part of the year and a resident alien for the remainder. This occurs in the year of arrival (before and after meeting the substantial presence test) and the year of departure. The return uses Form 1040 for the resident period with Form 1040-NR attached as a statement for the nonresident period. During the resident period, worldwide income is taxable. During the nonresident period, only US-source income is taxable. The standard deduction is not available for the nonresident period.

Which US tax treaties benefit F-1 and J-1 students?

The China-US treaty (Article 20), Korea-US treaty (Article 21), and India-US treaty (Article 22) each contain specific exemptions for students and trainees covering wages, stipends, grants, and scholarship income for up to five years from the date of arrival. Other treaty partners with comparable student articles include Germany, France, the Netherlands, and Japan. Treaty benefits require a Form 8833 disclosure and documentation of treaty-country residency. We identify applicable treaty articles for each client's home country and prepare the required disclosures.

What is Form 1040-NR and who files it?

Form 1040-NR is the US income tax return for nonresident aliens. It applies to individuals who are nonresident aliens under IRC Section 7701(b) and who have US-source income not fully covered by withholding. F-1 students on OPT with US wages file Form 1040-NR. H-1B workers in their arrival year before meeting the substantial presence test file Form 1040-NR for the nonresident period and attach it to Form 1040 for the resident period. Green card holders are always resident aliens and never file Form 1040-NR.

What is pre-immigration tax planning and why does it matter?

Once a foreign national becomes a US resident alien, the US taxes all worldwide income and capital gains on foreign assets. Pre-immigration planning executed before the residency start date can eliminate or reduce the US tax cost of that transition by resetting the cost basis on appreciated foreign assets, restructuring foreign entity ownership to minimize GILTI exposure under IRC Section 951A, making treaty elections for foreign retirement accounts, and timing large gifts and inheritances before the US reporting requirements apply. These steps cannot be taken retroactively. For HNW clients from India, China, Hong Kong, and Singapore, planning two to three years before anticipated US residency is ideal.

Why Visa Holders and Nonresident Aliens Choose Silicon Valley Tax

Most tax preparers file what the client brings them without asking whether the right return form was used, whether a treaty election applies, or whether prior years were filed correctly. A missed FICA refund for an F-1 student who was incorrectly withheld for two years represents thousands of dollars left on the table. A dual-status return filed as a pure resident return for the arrival year may have incorrectly included foreign-source income from the nonresident period, inflating taxable income and generating an overpayment that cannot be recovered once the statute closes. An H-1B worker's spouse who never received an ITIN and was never claimed on a joint return may have cost the couple the benefit of the lower joint bracket for multiple years.

Alfonso Nuñez, CPA/JD, and Cooper Hathaway lead our international and nonresident alien practice at Silicon Valley Tax. Al’s background in tax law gives us particular depth on treaty positions, dual-status elections, and the technical arguments that arise in IRS correspondence. We prepare these returns for clients from India, China, South Korea, Taiwan, Japan, Germany, the UK, Israel, and across the full range of countries with significant Bay Area tech worker populations.

If you are on an H-1B, L-1, F-1, or OPT, are transitioning to a green card, or are planning to become a US resident and want to understand the tax implications before you arrive, call us at (408) 383-9870 or book a complimentary consultation.