Income Tax Benefits Information for H1B Visa Holders in USA
H1B Visa Holders in USA do find difficulty in knowing about their eligible deductions and credits, having better understanding about credits and deductions will possibly reduce your tax liability and increase tax refunds.
There has been much efforts from our side helping all H1B and F1 students in filing appropriate tax filing form with suitable tax benefits in order to increase tax refunds and avoid penalties from IRS and State Income Tax Departments.
In order to evaluate your tax benefits a good understanding about the below mentioned tax related information is absolutely required.
- Resident or non-resident alien
- Types of standard deduction (Filing status)
- Non-taxable vs Taxable income
- Choosing qualified dependent to claim child tax credit or other dependent credit
- Earned Income Credit (EIC)
- Itemized Deductions
- Education credits
- Tuition fees credit/deduction, (Student) loan interest deduction
- Health saving account (Deduction) and (Roth IRA) Individual Retirement Account etc.
What Should You Assess Before Choosing Filing Status?
You should assess whether you are resident or non-resident alien to choose a suitable filing status on form 1040. Yes, you need to check whether you are non-resident or resident alien, as resident aliens are eligible to file MFS, MFJ, HOH or QSS. Until there is a provision by tax treaties a Non-resident cannot file form 1040 to choose MFS, MFJ, HOH, QSS. You will not be a resident alien until you pass Green Card Test or Substantial Present Test or First Year Choice Test (FYCT).
Who Is Resident/Non-Resident For Tax Purposes?
If you pass Green Card or Substantial Present Test, you will be treated as resident alien to file form 1040 with eligible filing status. A non-resident is a tax payer who do not qualify according to green card test and substantial present test (SPT) and was in U.S. on F1 Visa (student), all non-residents should file form 1040NR.
Why Green Card Test Is Required?
You will be passing Green Card Test if you were a lawful permanent resident of the United States as per the immigration laws, to file form 1040.
What Is Substantial Present Test (SPT)?
You will considered as resident alien if you have passed SPT, if you have stayed in U.S according to below mentioned days.
- You should have stayed at least 31 days in a current tax year (2022)
- Calculate your one-third of total stayed days in U.S. (2021)
- Calculate your one-sixth of total stayed days in U.S. (2020)
Your 2022, 2021, 2020 of stayed days should be 183 as per the above-mentioned format, then you are treated as resident alien and can choose to file form 1040 and file with a MFS, MFJ, HOH, QWDC.
Types Of Standard Deductions For The Tax Year 2022
You can choose any of the 5-filing status below based on your eligibility, which can increase your standard deduction.
- Single (claimable deduction $12,950)
- Married Filing Jointly (MFJ) (claimable deduction $25,900)
- Married Filing Separately (MFS) (Claimable deduction $12,950)
- Head of Household (HOH) (Claimable deduction $19,400)
- qualifying Surviving Spouse (QSS) (25,900)
Single Filing Status: You can choose single filing status and claim $12,550 standard deduction, if you are unmarried or separated from your spouse.
Married Filing Jointly (MFJ): You can choose to file MFJ and claim standard deduction for the amount of $25,100 if you are Married and staying together, still married but not staying together because both the spouses are working in different locations etc.
Married Filing Separately (MFS): The reasons for filing separate tax returns if there is an income and no tax liability variations. Filing MFS tax return will let you lose the below tax benefits.
- Credits: Child and dependent care credit, Credit for the elderly or the disabled, Adoption credit, and Earned income credit.
- Education Benefits: Student loan interest deduction, Tuition & fees deduction, Education credits etc.
- Standard Deduction: If one spouse files itemized deduction, even other spouse should also file itemized deduction, this will result in loosing standard deduction.
- Social Security: Your social security benefits might be taxable at higher percentage
- Passive losses: Your rental and real estate losses are restricted to $12,000 for each spouse
Head of Household (HOH): You can choose to file HOH and claim standard deduction for the amount of $18,800, if you file a separate return, paid more than 50% of the entire cost of keeping home, your spouse did not live with you in last 6 months, your child should have stayed in your main home for more than 6 months.
Note: We have noticed many taxpayers who are unmarried or married were complied with the eligibility filed HOH and enjoyed the tax deduction, and got penalty notices from the IRS and state departments.
Qualifying Surviving Spouse (QSS): You can claim standard deduction for the amount of $25,900 if your spouse has died during 2021, you were not remarried during 2022, paid more than 50% of the cost of keeping home, and the dependent child was in main home for the entire year.
List of Various Types Taxable & Nontaxable Income For Income Tax Consideration Purposes.
Taxable Income:
- A property is received under Barter with a Fair Market Value (FMV)
- Cancelled debt
- Employer payments
- Awards
- Prices
- Inheritance
- Gifts
- Lawsuits
- Insurance claims
- Life insurance proceeds
- Wage replacements
- Government payments
- Public service
- Recoveries
- Scholarships, fellowships, tuition discounts
- Sick pay and disability benefits
- VA benefits and military pensions
- Allowances paid of volunteer’s minor child and spouse during training etc.
Non-Taxable:
- Services related to noncommercial basis
- Student loans cancelled due to disability or death
- Debt cancelled during bankruptcy, etc.
- Noncash gifts if it is of normal value
- Contributions for qualified plans
- Prize or award for performance in education etc.
- Received inherited property, etc.
- Compensation received for injury or sickness
- Property damage
- Insurance reimbursements
- Insurance death benefits
- Workers compensation to surviving spouse
- Annuities through government plans
- Eligible public welfare benefits, etc.
- Disaster relief payments
- Insurance benefits for disability, etc.
What Is Child Tax Credit & Who Can Claim?
A child tax credit is a nonrefundable credit for the amount of $2,000 can be claimed on each qualified child, in turn it can reduce tax. A citizen or resident alien child having SSN will get you a credit of $2,000 and a child with Individual taxpayer identification number (ITIN) will get you a credit of $500. Maximum allowable age for a child to claim a child tax credit is 17 years.
AGI phase-out limit: Above the threshold limit, the child tax credit is reduced by $50 on each $1,000 additional income over the threshold.
What Is Other Dependent Credit?
A taxpayer can claim other dependent credit for the amount of $500 in each qualified dependent, and the dependents are taxpayer’s dependent child, parents, or cousin, relatives and non-relative.
What Is Additional Child Tax Credit?
The tax payers whose income is at least $2,500 will be eligible to claim additional child tax credit, for some taxpayers it is nonrefundable, Maximum allowable credit on each allowable child is $1,400.
Your Low income Could Get You Earned Income Tax Credit (EIC)
Earned Income Tax Credit is a benefit claim by a taxpayer whose income is moderate, even unmarried with single filing status can claim the credit.
In order to claim Earned Income Credit the taxpayer should have an earned income the investment income should not be over $3,600. The taxpayer who is filing a Married Filing Separate (MFS) tax return and non-resident cannot claim EITC.
Earned Income Tax Credit is a benefit claim by a taxpayer whose income is moderate, even unmarried with single filing status can claim the credit.
We have been noticing the non-residents who are international students of F1 visa, due to lack of tax knowledge are filing form 1040 with low income claiming EITC, which is absolutely contrary to the IRS guidelines and are receiving penalty notices.
What Are Itemized Deductions & Who Can Claim?
The below itemized deductions can be claimable according to the threshold limits.
- The medical expenses over 7.5% of adjusted gross income (AGI).
- Paid state and local taxes, general sales taxes, property taxes and maximum claimable amount is $10,000.
- Home Insurance premiums, points and home mortgage interest
- Gifts by cash or checks and carryover from prior year
- Theft and casualty loss affected declared under federal declared losses
A taxpayer can either claim Standard or Itemized Deductions, whichever is beneficial.
Who Can Claim Education Credits & How It Works?
Education credits are two types, 1. American Opportunity Credit (AOTC) & Lifetime Learning Credit (LLC).
American Opportunity Tax Credit: AOTC is claimed for a taxpayer, spouse, or any qualified dependent if the expenses are related to tuition and fees for attendance, enrollment, student activity fees, books, supplies, equipment for education, if the fee amount is directly paid to the recognized university.
The maximum claimable credit is $2,500 for each eligible student, If the credit has Zeroed your tax still you can claim 40% of remaining credit up to $1,000.
Note: A student should be pursuing a degree or other recognized credential, should have at least enrolled in half time of academic period, should not have completed first four years of higher education, should not have claimed AOTC for more than first four years, and finally should not have felony drug convicted.
Who Is Eligible To Claim Lifetime Learning Credit (LLC)?
A working person can claim Lifetime Learning Credit (LLC) for self, spouse and other dependents. The claimable qualified tuition fees expenses should be for studying graduate, undergraduate or professional courses, even for the job improvement and skill courses. The credit is 20% of the first $10,000 of education expenses or up to $2,000.
How Tuition and Fees Deduction Affects Your Taxes and How To Claim?
Amount paid for Attendance, enrollment fees, books, supplies and equipment’s to the educational institution for self, spouse and dependents can be claimable as deduction. The educational institutes should issue form 1098-T, and the taxpayer either can claim deduction or credit.
Can Having Health Savings Account (HSA) Could Get Any Deduction?
Keeping money with Health Saving Account will give you a deduction in turn your tax will come down. In order to get the tax benefit, the HSA should be under high deductible health plan (HDHP) and should not have covered or enrolled under any non-HDHP health plan or Medicare.
Employer contribution towards HSA is non-deductible, but employee contribution is deductible. The eligible tax deduction for HSA contribution limits for self-only under 55 years of age is $3,650 and additional contribution over 55 years of age is $1000. The eligible deduction for HSA contribution for family is $7,300 and additional contribution over 55 years of age is $1,000.
Crescent Tax Filing Will Help You In Assessing Your Taxes.
We crescent tax filing are glad to help you in your personal taxes, by evaluating your eligibility we can add deductions and credits to reduce your tax liability to reduce your taxes, in turn you can expect satisfied tax refunds.
We will provide you with the tax estimate, once we have your tax related documents like form W2, 1099, filled tax information form etc. After providing you with the initial tax estimate our tax experts will call you and discuss with you to take additional information in order to provide you with the final tax estimate.
Can Crescent Tax Filing Help Me In Case I Receive An Audit Letter?
Remember! the movement you receive the tax estimate from us you will be added to our value added tax service, therefore any audit or notice from IRS or State Income Tax Department we will help you without fee collection. We can even help you in planning your taxes, providing you with form W4 to be submitted with your employer for appropriate tax withholding to get more tax refunds when you file your tax return.