Switching from F1 to H1B
For many Indian professionals, the transition from an F1 student visa to an H1B work visa is a major career milestone. However, from the perspective of the IRS, this transition is a “tax event” that fundamentally changes your residency status, your pay check withholdings, and your reporting requirements.
As you move into the 2026 tax season, being aware of these shifts—especially under the One Big Beautiful Bill (OBBB) can prevent unexpected tax bills and immigration complications.
1. The Loss of FICA Exemption
The most immediate change you’ll notice is in your take-home pay.
- The F1 Rule: Most F1 students on OPT are “exempt individuals” and do not pay Social Security or Medicare (FICA) taxes for their first five calendar years.
- The H1B Reality: The moment your status changes to H1B (usually October 1), you are no longer exempt. Your employer must begin withholding 7.65% for FICA immediately.
- The Error: If your employer continues to treat you as FICA-exempt after your H1B start date, you will owe back taxes. Always check your October and November pay stubs to ensure FICA is being deducted.
2. The Substantial Presence Test (SPT) Pivot
While on F1, you were likely a “Nonresident Alien” because students don’t count their days toward residency for the first 5 years.
- The Shift: Once you are on H1B, you must count every day toward the Substantial Presence Test.
- The Result: If your H1B started on October 1, 2025, and you were already in the U.S. on OPT, you likely passed the 183-day mark for the year. This means you will transition from filing Form 1040-NR to the standard Form 1040.
3. Filing as a “Dual-Status” Alien
The year you switch is often a “Dual-Status” year. You are a nonresident for the months you were on F1 and a resident for the months you were on H1B.
- The Complexity: Dual-status filers cannot take the standard deduction (unless they make a special election). You must report only U.S. income for the first part of the year, but worldwide income for the second part.
- Primary Form: Usually, you file Form 1040 with a Form 1040-NR attached as a “statement” to show your nonresident earnings.
4. Article 21: The U.S.-India Treaty Lifeline
One of the best “secrets” for Indian switchers is Article 21 of the U.S.-India Tax Treaty.
- The Benefit: Most nonresidents cannot take the standard deduction. However, Article 21 allows Indian students and “business apprentices” to claim the Standard Deduction ($15,750 for 2025) even if they are filing as nonresidents for part of the year.
- The Catch: Once you are fully established on H1B and no longer considered an “apprentice,” this benefit may expire. Proper timing is key to maximizing this deduction.
How KKCA Secures Your Status
Switching visas is the most common time for “accidental” tax non-compliance. At KKCA, we protect your transition by:
- FICA Correction: If your employer missed the switch, we help you coordinate with payroll to fix the withholding before the year-end W-2 is issued.
- Dual-Status Optimization: We calculate whether it’s cheaper for you to file as “Dual-Status” or to elect “Full-Year Resident” status (which allows for a joint return with a spouse).
- Treaty Application: We ensure Article 21 is properly cited on your return so you don’t lose out on the $15,750 deduction during your transition year.
Call to Action
Looking for personalized tax services about your specific tax situation, please contact us. We are here to help you with your specific tax matters.
Frequently Asked Questions (FAQ)
Q: My H1B was approved via “Consular Processing” in November. Am I still a resident? A: Your residency count only starts from the day you physically entered the U.S. in H1B status. If you entered late in the year, you might remain a nonresident for 2025.
Q: Can I get a refund for FICA taxes I paid while I was still on F1 OPT? A: Yes. If your employer mistakenly withheld FICA while you were an exempt F1 student, you should first ask the employer for a refund. If they refuse, you can file Form 843 with the IRS.
Q: Does my “5-year clock” for F1 reset if I go back to school later? A: No. The 5-year exemption is a lifetime limit. If you used 4 years as a student, worked on H1B, and then went back for a PhD, you would only have 1 year of exemption remaining.
Q: Now that I’m on H1B, do I need to report my Indian bank accounts? A: If you pass the Substantial Presence Test and become a Resident Alien, yes. You must file an FBAR if your Indian accounts exceed $10,000 at any point.
Disclaimer
This blog is intended for informational purposes only and does not constitute legal or tax advice. Please consult a qualified U.S. CPA or tax attorney for guidance specific to your situation.