Japanese National Working in US

[Lion EA]

I have a sole proprietor client who is hiring a Japanese national here on a three-year visa who is allowed to work but intends to return to Japan. The work visa was issued 5/5/2012 and is good until 08/21/2015. (Actually, slightly conflicting dates on the paperwork from her lawyer/I-9, but we're talking about three years here.) H1B. Does she need to withhold FICA and Medicare?

Additionally, while on an H1B visa, can we use the substantial presence test to file a 1040? I haven't had any foreign issues for years, then mostly international students at a local university years ago when I was at Block. This year I have the employee from Japan and Americans going to Singapore for two years.

[kcjenkins]

From the IRS examples of Alien Residency

Example 8

Mr. Gerhard Schwarz was a citizen and resident of Germany just prior to his arrival in the United States. He arrived in the United States on 08-15-2011 as a professor of physics on an H-1b visa. He intends to remain in the United States for two academic years, and does not intend to change his immigration status during that period before returning home. Determine his residency starting date.

Solution:

Analysis for 2011

Nonexempt individual (individuals in H-1b status are never Exempt Individuals)
Date of entry into United States: 08-15-2011
Begin counting 183 days at this date: 08-15-2011
Number of nonexempt days in United States during 2011: 139 days (08-15-2011 through 12-31-2011)
Current year (2011) days in United States (139) × 1 = 139 days
Prior year (2010) days in United States (0) × 1/3 = 0 days
Second Prior year (2009) days in United States (0) × 1/6 = 0 days
Total = 139 days

Gerhard does not pass the substantial presence test during 2011.

As another option, Gerhard could claim the First-Year Choice under IRC 7701((2)(A) and qualify for a residency starting date of 08-15-2011. He did not meet either the green card test or the substantial presence test in the prior year (2010), he was present in the United States for at least 31 days in a row in 2011, was present in the United States for at least 75% of the number of days beginning with the first day of the 31-day period (08-15-2011) and ending with the last day of 2011, and met the substantial presence test in the subsequent year (2012). Refer to the Residency Starting Date under the First-Year Choice section in Residency Starting and Ending Dates.

Analysis for 2012

Nonexempt individual (individuals in H-1b status are never Exempt Individuals)
Date of entry into United States: 08-15-2011
Begin counting 183 days at this date: 08-15-2011
Number of nonexempt days in United States during 2012: 366 days
Current year (2012) days in United States (366) × 1 = 366 days
Prior year (2011) days in United States (139) × 1/3 = 47 days
Second Prior year (2010) days in United States (0) × 1/6 = 0 days
Total = 413 days

Gerhard passes the substantial presence test on 05-15-2012. From 2011, 47 days, plus 136 days from 2012 (01-01-2012 through 05-15-2012) = 183 days.

Gerhard's residency starting date is 01-01-2010 (the first day he was present in United States during the calendar year in which he passed the substantial presence test).

What kind of federal income tax returns will Gerhard file for 2011 and 2012?

2011:
Option #1. Gerhard will file Form 1040NR/1040NR-EZ as a nonresident alien.

Option #2. Gerhard will file a dual-status tax return as a dual-status alien, claiming the First-Year Choice under IRC 7701((2)(A) and a residency starting date of 08-15-2011.

2012:
Gerhard will file Form 1040/1040A/1040EZ as a resident alien.

[TaxMan60601]

Absolutely correct. Yes, FICA and Medicare required, and while on an H1B visa, can use the substantial presence test to file a 1040, if test met. If was (and work) in US before 05/05/12 on one of the exempt visa status could be dual status. One of the benefits of using dual status is the fact that taxpayer can avail of tax treaty on non-resident part of the income. As the person is H1B Japanese national I think it wont be a problem if you send1040 to Austin with 7701 election. A bit tricky but could be assembled via ATX, I suppose with other softwares too.

[Guest Taxed]

Just curious that the sole prop did not find a qualified person in all of USA for the position?

Could it be that the sole prop is some how related or connected to this Japanese national?

[ed_accountant]

F-1 and J-1 student visa holders are typically exempt from paying F.I.C.A.

http://sait.usc.edu/ois/taxes/fica.aspx

Internationals and F.I.C.A.

F-1 and J-1 student visa holders are typically exempt from paying F.I.C.A. taxes for their first 5 years in the United States and these taxes should not be deducted from paychecks. J-1 scholars and researchers are typically only exempt for 2 years. The mechanism for the exemptions are found under Internal Revenue Code 3121 (b (19) and is available to persons in F-1, J-1, M-1 and Q immigration status.

To determine residency threshold for tax liability, one would use the “Substantial Presence Test” utilized by the IRS.

It is a blanket exemption with the only qualification being that the person be a nonresident for tax purposes and that the work is authorized (CPT, OPT, AT). IRS Publication 519 is a good resource, specifically pages 44 and 45. More information is available here.

Obtaining Reimbursements of F.I.C.A. Witholdings

If one's employer has mistakenly withheld F.I.C.A. taxes, they must work with their employer directly to request a reimbursement. If the employer will not assist a taxpayer, one would file Internal Revenue Service (IRS) forms 843 AND supplemental form 8316 to request reimbursement.

Please note that J-2s with work authorization are not exempt from FICA taxes. If USC may have withheld FICA in error, please contact University Payroll Services at [email protected]

[Lion EA]

SP creates children's art books and has not had a book translated to Japanese in years. Met this educated woman who volunteered in client's elementary school art class and felt she was a perfect fit. Potential employee may have come here on a visitor's visa after Fukashima (sp?) tragedy. But a lawyer was retrained to get the work visa with client's sponsorship. That's when they came to me to ask about payroll. (There is an estranged US citizen husband in NYC, but whatever that could have meant in regard to the Japanese woman and her son staying in the US was already dealt with by the NYC lawyer before I met them.)

I just needed to know about FICA and Medicare withholding, because she does want to return to her aging parents in Japan when it's safer. And, whether she can do the usual 1040 things, such as HoH (instead of MFS) and a dependent son or whether she will be restricted on exemptions on a 1040NR.

This is all great information plus it points me to the cites I need to educate myself as these international issues come up. Thank you very much for your help.

[kcjenkins]

Way to go, Lion!