Saving Mantra Blogs

Step-by-step: US H-1 / L-1 — Tax Return Filing for Indian Employees

Written by

Financial Analyst

in

Quick summary

H-1/L-1 employees must decide whether they’re U.S. tax residents or nonresidents, then file the correct federal return (Form 1040 for residents or 1040-NR for nonresidents) and any required state return — with FBAR/FATCA and other reporting as applicable. IRS+1

TL;DR checklist

  • Determine tax residency (Substantial Presence Test). IRS
  • Resident → file Form 1040; Nonresident → Form 1040-NR. IRS+1
  • Federal due date (usual): April 15 (see IRS “When to file”). File Form 4868 to get a 6-month extension to file (but not to pay taxes). IRS+1
  • Report foreign accounts if aggregate > $10,000 at any time → FBAR (FinCEN Form 114). FinCEN.gov
  • If you (or spouse) don’t have SSN, apply for ITIN (Form W-7). IRS

Step-by-step process (simple language)

Step 1 — Work out whether you’re a U.S. tax resident

Use the IRS Substantial Presence Test: you’re a resident for tax purposes if you were physically present at least 31 days in the current year and 183 days total using the 3-year formula (all days this year + 1/3 of last year + 1/6 of the year before). If you meet it, you generally file as a resident and report worldwide income. If not, you’re a nonresident and generally report U.S.-source income only. IRS+1

Step 2 — Gather your income documents

Collect:

  • W-2(s) from employer(s) (shows wages and taxes withheld).
  • Any 1099s for contract work, interest, dividends, or other income.
  • Form 1042-S if you received certain treaty-exempt or other payments.
  • Records of foreign income, foreign taxes paid, bank statements (for FBAR/8938), and proof of tax withheld.

Step 3 — Choose the right federal form & understand what to report

  • If resident: file Form 1040 — report worldwide income, claim credits/deductions (e.g., foreign tax credit on Form 1116 if you paid tax abroad). IRS
  • If nonresident: file Form 1040-NR — report only U.S.-source income and treaty items as applicable. IRS

(If you’re unsure: the Substantial Presence Test page gives examples and the IRS also explains tax treatment of H-1B aliens.) IRS+1

Step 4 — Check whether the U.S.–India tax treaty helps you

The U.S.–India tax treaty can affect how certain types of income are taxed (and may provide relief from double taxation for some items). Treaty provisions are technical—if you think a treaty article applies (for example, for certain pensions, teachers, or temporary visits), consult the treaty text or a tax advisor. IRS

Step 5 — Watch reporting rules for foreign assets & bank accounts

  • FBAR (FinCEN Form 114): U.S. persons (which includes resident aliens) must file if the aggregate value of foreign financial accounts exceeds $10,000 at any time during the calendar year. This is filed electronically with FinCEN (separate from the IRS return). FinCEN.gov
  • FATCA (Form 8938): separate IRS reporting for specified foreign financial assets if higher thresholds apply (depends on filing status and whether you live in the U.S. or abroad). (See IRS guidance — thresholds vary.) IRS

Step 6 — State tax return & payroll taxes

Most states require income tax returns if you earned income there — check the state revenue department for rules and deadlines. Note: Social Security and Medicare are payroll taxes generally withheld by employers and are not reported on Form 1040 the same way income tax is (but they affect take-home pay). Totalization (social security) agreements can change coverage — India and the U.S. have been in discussions, but check current SSA/IRS guidance for status. IRS+2Social Security+2

Step 7 — Deadlines & extensions

  • Federal filing due date: normally April 15 (use the IRS “When to file” page for this year’s exact calendar). If you need more time to file, submit Form 4868 for an automatic 6-month extension to file (not to pay). Pay any expected tax by the April due date to avoid interest and penalties. IRS+1

Step 8 — If you or your spouse don’t have an SSN

Apply for an ITIN (Form W-7) when required (for spouses or dependents not eligible for an SSN). Instructions and supporting documents are on the IRS W-7 page. You can often submit the W-7 with the tax return to the IRS through the correct channels. IRS

Step 9 — File, pay any tax due, and keep proof

File electronically where possible (faster refunds and fewer errors). Pay by bank transfer, debit, credit, or EFTPS. Keep PDF copies of filed returns, payment confirmations, W-2s, 1099s and bank records for at least 3–7 years (longer if issues or audits). Use the IRS “Where’s My Refund?” tool to track refunds. Kiplinger+1

Common mistakes to avoid

  • Filing the wrong form (1040 vs 1040-NR) after mis-calculating residency. IRS+1
  • Missing FBAR when foreign accounts exceed $10,000 (serious penalties). FinCEN.gov
  • Not paying estimated taxes if you have large untaxed income (e.g., freelance/1099).
  • Using wrong treaty positions without documentation — treaty claims often require Form 8833 or other support. IRS

Practical Saving Mantra tips (for Indian H-1/L-1 employees)

  • Start early: request W-2s/1099s from employers and gather bank records in Jan–Feb. IRS
  • If you worked part-year in the U.S., run the Substantial Presence Test carefully (days count exactly). IRS
  • Keep clear digital copies of all documents — you may need them for FBAR/FATCA. FinCEN.gov
  • If you paid tax in India on the same income (rare for US wages), the foreign tax credit (Form 1116) or treaty relief may prevent double taxation — get professional help. IRS
  • Use professional e-file software or a tax advisor experienced with nonresident/resident alien rules — small errors can cause large penalties or lost treaty benefits.

Short checklist (ready to use)

  • Decide residency (Substantial Presence Test). IRS
  • Collect W-2, 1099, pay stubs, bank statements.
  • File Form 1040 (resident) or Form 1040-NR (nonresident). IRS+1
  • File FBAR (FinCEN Form 114) if foreign accounts > $10k. FinCEN.gov
  • File Form 4868 if you need more time to file (pay taxes due by April). IRS
  • Apply for ITIN (Form W-7) if spouse/dependents need one. IRS

Where to read official guidance (quick links)

  • IRS Substantial Presence Test & residency rules. IRS
  • IRS: Taxation of H-1B / aliens by immigration status (resident vs nonresident). IRS
  • IRS: Form 1040-NR guidance for nonresident aliens. IRS
  • IRS: When to file (deadlines) & Form 4868 for extensions. IRS+1
  • FinCEN: FBAR reporting rules (Form 114). FinCEN.gov
  • U.S.–India tax treaty text (for treaty claims). IRS

Disclaimer

This guide provides general information only and is not tax or legal advice. U.S. tax rules (residency tests, filing forms, reporting thresholds, treaty interpretations, and deadlines) change frequently and can be complex for international employees. For personalized advice—especially about residency status, treaty claims, FBAR/FATCA rules, and state returns—consult a qualified U.S. tax professional or CPA. Saving Mantra is not responsible for actions taken based on this guide.

More posts