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What Type of Taxes Will I Pay in the United States on an H1B?
As an H1B worker in the US, you can expect to pay between 20-40% of your wages in federal and state and local taxes, depending on your income level. These taxes will include:
- Federal income tax
- Federal payroll tax (a.k.a. FICA)
- State income tax (depending on where you live)
- Local income tax (depending on where you live)
You may also pay these taxes while living in the United States: sales tax, property tax, transfer tax, capital gains tax, inheritance or estate tax, gas tax, hotel or lodging tax.
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You have to pay Federal Income Tax on an H1B
- US Citizens, permanent residents, resident aliens and nonresident aliens working in the US (including H1B workers who don’t pass the Substantial Presence Test) pay federal income taxes on their US source income. Your federal income tax percentage depends on how much you earn. The US has progressive “marginal tax brackets” which means that different portions of your income are taxed at different amounts.
- Most H1B workers pay 20-35% of their income in federal income tax
- If you are working on an H1B and meet the Substantial Presence Test and are thus considered a Resident Alien, you may also owe federal income tax on your worldwide income
- US Citizens and resident aliens also pay federal income tax on worldwide income
You can figure out how much federal income tax you will pay using a chart like this:
|Tax Rate||Single||Married Filing Jointly||Married Filing Separately||Head of Household|
|10%||$1 to $9,525||$1 to $19,050||$1 to $9,525||$1 to $13,600|
|12%||$9,526 to $38,700||$19,051 to $77,400||$9,526 to $38,700||$13,601 to $51,800|
|22%||$38,701 to $82,500||$77,401 to $165,000||$38,701 to $82,500||$51,801 to $82,500|
|24%||$82,501 to $157,500||$165,001 to $315,000||$82,501 to $157,500||$82,501 to $157,500|
|32%||$157,501 to $200,000||$315,001 to $400,000||$157,501 to $200,000||$157,500 to $200,000|
|35%||$200,001 to $500,000||$400,001 to $600,000||$200,001 to $300,000||$200,001 to $500,000|
|37%||over $500,000||over $600,000||over $300,000||over $500,000|
The US has marginal tax rates which means that you do not say the same percentage on all of your income. It works like a step function. If your 2018 income is $49,000 and your status is single, the first $9,325 will be taxed at 10%. The income between $9,326 and $38,700 will be taxed at 12%. The rest of your income (the amount over $38,700 up to $49,000) will be taxed at 22%.
You also have to pay Federal Payroll Tax (aka FICA) - Social Security and Medicare - on an H1B
- The US government takes 6.2% out of your pay for social security up to $132,900 of your pay. This is included in “FICA.”
- The US government takes 1.45% out of your pay for Medicare. This is included in “FICA.”
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Taxes Your Employer Pays On Your Behalf on an H1B Worker
- Everything you paid in payroll taxes (6.2% in social security and 1.45% for Medicare = 7.65% total) will also be paid on top of what you pay by your employer. You will not notice this payment and your employer is responsible for paying it to the IRS
- Self-employed people have to pay the employer portion themselves on top of the individual portion, but this does not apply to H1B workers who can’t be self-employed
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You may have to pay State Income Tax on an H1B
- Certain states have an additional income tax, usually ranging from 0-10% of your gross income
- Both US Citizens and non-citizens working in that state will pay this state income tax
- This tax will be withheld from your paycheck by your employer
- During tax season (January to April), you will need to file a state income tax return. You can also file an extension and file in October instead
- Some states do not have personal income tax. These states include: Alaska, Florida, Nevada, South Dakota, Texas, Washington, Wyoming. New Hampshire and Tennessee don’t tax wages but they do tax dividends and interests at the state level
You may have to pay Local Income Tax on an H1B
- Some local towns and cities have a local income tax, often 1-4% of gross income
- In most instances, local income tax will be withheld on your paycheck by your employer as long as your address on your W4 form is up to date
- If you accidentally put the wrong address on your W4 form, you may pay incorrect local taxes! A financial advisor like MYRA can help you pay taxes to the proper locality and get back erroneously paid local taxes
- During tax season, you will need to file a local income tax return. These forms are usually very simple but if you find it confusing, MYRA can help!
What if I live in one state and work in another?
- Be sure to put your home address on your W4 Form and update it if you move. In general you will not pay double taxes but you may have to file tax returns in both states. Many states have “reciprocity” agreements with their surrounding neighbors and you will usually pay the higher of the two state’s taxes. A tax advisor like MYRA can help you do complicated multi-state tax returns, ensuring that you get back any credits you are owed and don’t double pay.
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How Much Will I Pay Overall?
- It depends on the state and your income level. On average, H1B workers should plan to pay 20-40% of your gross income in total taxes in the United States. The higher your income and the higher tax state you live in, the higher your taxes will be. Don’t forget, you may also pay other taxes including capital gains taxes, sales taxes, transfer taxes, and property taxes.