Why Did My Take-Home Pay Go Down After I Went From F-1 to H-1B?

How U.S. tax obligations change one's take-home pay after H-1B status becomes effective.

Question

I studied in the United States on an F-1 visa and then had Optional Practical Training (OPT) work authorization for a year. My employer sponsored me for H-1B status. Fortunately, the petition was selected in the lottery, and USCIS approved it for an October 1 effective date. I just got my paycheck for October. My net earnings are less than last month.

I see that additional taxes came out of my pay. Is this proper?

Answer

Yes, unfortunately, the new deductions your employer made most likely are proper. As an F-1 student, it’s often possible to avoid paying FICA (Social Security and Medicare) taxes, because you can qualify as a “non-resident” for tax purposes.

Once your immigration status changes to H-1B temporary worker, you typically are considered to be a “resident,” again for tax purposes, and therefore must pay these FICA taxes. The result is that your net pay will be less for pay periods beginning after you have changed from F-1 to H-1B status.

To be sure, the rules for determining whether you are a resident for tax purposes can be complicated. The Internal Revenue Service (IRS) issues Publication 519, U.S. Tax Guide for Aliens each year to provide information related to tax returns for non-citizens. You can find the latest version by searching for “Publication 519” on the IRS website, www.irs.gov.

For additional information on tax issues, review the IRS’s Reference for Foreign Students and Scholars.

Finally, as noted above, tax matters can be rather complex. If you review the IRS materials and still have questions, seek out a Certified Public Accountant (CPA) or tax attorney who has experience advising non-citizen workers such as yourself. That may be the best way to get your questions answered quickly and correctly.

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