United States: Payroll withholding required for new H-1B employees

Employees whose H-1B cap subject petitions have been approved for a change of status will convert to H-1B status Oct. 1.

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Key points:

  • Payroll departments should be aware that H-1B employees are subject to Federal Insurance Contributions Act (FICA) withholding and should pay particular attention to employees who are currently exempt but who will become subject to withholding when their status changes Oct. 1. This group typically includes F-1 students employed under the Optional Practical Training (OPT) program whose H-1B petitions filed in April have been approved.
  • Employers should update Form I-9, Employment Eligibility Verification for students on “cap-gap” extensions of the OPT program. This extension automatically ends Oct. 1 for H-1B visa holders, and employers must ensure that Form I-9 is properly completed to reflect these employees’ eligibility to work in the U.S.

Background: Generally, non-U.S. resident employees are taxed on wages for work performed in the U.S. Some categories of employees, such as students and trainees, however, are exempt from withholding for designated periods. Students present on F-1 visas, for example, are often exempt for five years. Employers must be prepared to justify any claimed exemption or exclusion from withholding.

BAL Analysis: Employers and their payroll departments should be aware of FICA withholding rules for H-1B cap workers, including existing employees who will convert to H-1B status Oct. 1. Wages offered in an employee’s I-129 petition and Labor Condition Application (LCA) also become effective Oct. 1.

This alert has been provided by the BAL U.S. Practice group. For additional information, please contact BerryApplemanLeiden@balglobal.com.

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