H-1B Tax Filing for Foreign Nationals in the USA
Once you meet the substantial presence test you are taxed on worldwide income — which means everything you still hold back home comes into scope, whether or not you bring the money over.
What this service covers
The US salary on an H-1B is the easy part. What catches Indian professionals out is everything still connected to India. Unlike F-1 and J-1 holders you are not an exempt individual, so your days count from the moment you arrive, and once you meet the substantial presence test you are a US tax resident taxed on worldwide income. Your NRE interest — genuinely tax free in India — becomes ordinary taxable interest to the IRS. Your Indian mutual funds are almost certainly PFICs, reportable on Form 8621 under a regime designed to be unattractive. Your Indian accounts come within FBAR at an aggregate balance of $10,000 at any point in the year, and possibly Form 8938 as well. Your arrival year is the hardest of all, because dual-status filing and the first-year choice produce materially different tax. EvoTax fixes your residency position, reports the Indian side correctly, claims foreign tax credit and treaty relief so the same rupee is not taxed twice, files the disclosures, and gets ITINs for an H-4 spouse or children.
Reviewed by Teja K, CPA · last reviewed . General information, not tax advice for your situation. How we research and review this.
Your residency status decides everything else
Almost every question an H-1B holder has about US tax resolves to one prior question: were you a US tax resident for the year? Get that wrong and the rest of the return is wrong with it, because residents and non-residents are taxed on different income, use different forms, and get different deductions.
H-1B holders are not exempt individuals. That is the single most important structural difference between your position and an F-1 or J-1 student's. A student on F-1 can spend years in the US without their days counting toward residency; your days count from the date you arrive. Once the substantial presence test is met — broadly 183 days on a weighted three-year calculation, counting the current year in full, a third of the prior year and a sixth of the year before that — you are a US tax resident and you are taxed on worldwide income.
| Compared on | Non-resident | Resident |
|---|---|---|
| Income taxed | US-source only | Worldwide, including Indian income |
| Form | 1040-NR | 1040 |
| Standard deduction | Generally unavailable | Available |
| File jointly with spouse | No | Yes, with an ITIN if no SSN |
| FBAR obligation | None | Applies at $10,000 aggregate |
| Form 8938 | Generally not | Applies above threshold |
The year you arrive is the awkward one, because you are usually non-resident for part of it and resident for the rest. That is a dual-status year, and it is the most error-prone return most people will ever file.
What "worldwide income" actually means for someone from India
Worldwide income is not an abstraction. For an Indian professional in the US it usually means four or five specific things, and the pattern we see is that the US salary is reported correctly and everything below it is missed.
- NRE interest. Exempt from Indian tax, and that exemption is a fact about Indian law with no bearing on your US return. To the IRS it is ordinary interest income, fully taxable. People miss it precisely because they have been correctly told it is tax free.
- NRO interest. Taxable in both countries, usually with TDS already deducted in India. That Indian tax is generally creditable, so reporting it is not the same as paying twice — but the credit only arrives if it is claimed.
- Indian mutual funds and ULIPs. Almost always PFICs, reported on Form 8621 under a regime designed to be unattractive. This is the most expensive surprise in the whole area.
- Rental income from Indian property, reported gross with depreciation and expenses computed under US rules, not Indian ones.
- Employer equity — RSUs and ESPP — where the vest or purchase may have been taxed in India as well.
None of this appears on a US W-2, which is why a return built from the W-2 alone looks complete and is not. The reconciliation problem underneath it is that India runs an April-to-March year and the US runs a calendar year, so Indian figures have to be restated before they can go on a 1040.
Reporting an account is not the same as taxing its income
These are two separate obligations with separate thresholds, and it is common to owe both, one, or neither. Conflating them is how people end up either filing unnecessary forms or missing required ones.
The FBAR — FinCEN Form 114 — is a disclosure filed with the Financial Crimes Enforcement Network, not with the IRS, and not attached to your 1040. It is triggered when the combined highest balance of all your foreign financial accounts exceeded $10,000 at any point in the year. It is an aggregate test across every account, using peak balances rather than year-end figures, so four accounts of $3,000 each cross a line none of them individually looks like it should.
Form 8938 is a different form, filed with the return under FATCA, at higher thresholds that vary by filing status and where you live. Filing one does not satisfy the other.
Filing an FBAR discloses an account. It does not determine whether the income in that account is taxable — and for Indian provident funds, EPF and PPF, the income question is genuinely unsettled. We say so rather than picking an answer.
The relief that stops the same rupee being taxed twice
Reporting Indian income on a US return does not mean paying full US tax on top of full Indian tax. Two mechanisms exist and both have to be claimed — neither is automatic.
The foreign tax credit on Form 1116 credits Indian tax you have already paid, including TDS, against your US liability on the same income. It is limited by category and by the proportion of your income that is foreign, which is why it rarely eliminates the US tax entirely and why the calculation is worth doing properly.
The India-US tax treaty then addresses specific situations the credit does not — which country has the primary right to tax a particular kind of income, and in a few cases whether it is taxable in the US at all. Treaty positions turn on facts and have to be claimed on the return, with the relevant article identified.
Where this comes from
- IRS — Substantial Presence Test: the weighted three-year count and who is an exempt individual
- IRS Publication 519 — US Tax Guide for Aliens, including dual-status years and the first-year choice
- IRS — Report of Foreign Bank and Financial Accounts (FBAR): who must file and the aggregate threshold
- IRS — About Form 8621, the return required for shareholders of a passive foreign investment company
- IRS — About Form 1116, Foreign Tax Credit
- IRS — India tax treaty documents: the convention text and technical explanation
Benefits & What You Get
NRE and NRO treated correctly
NRE interest is exempt in India and fully taxable in the US. NRO interest is taxable in both, with credit for the Indian TDS. Being told it is "tax free" is how this gets missed.
Indian mutual funds identified as PFICs
Indian equity and debt funds and ULIPs generally fall under the PFIC rules and Form 8621. We identify what you hold before the reporting compounds across years.
Arrival-year position computed both ways
Dual-status versus the first-year choice can differ substantially. We calculate both and file whichever is genuinely better.
FBAR and Form 8938 filed
The aggregate $10,000 FBAR test counts your peak balance across every Indian account, including ones held jointly with a parent. This is where the harshest penalties sit.
Indian tax credited, not wasted
TDS on Indian rent, interest and capital gains is generally creditable on Form 1116. Claiming it is what stops double taxation.
ITINs for an H-4 spouse and children
Form W-7 filed with the return, so filing jointly is actually an option rather than a theoretical one.
How It Works
Establish residency
We calculate your status from entry dates and prior presence, including any earlier F-1 years, and identify dual-status and first-year-choice options.
Inventory the India side
Accounts, funds, property, employer equity and Indian income, restated from the April-March Indian year onto the US calendar year.
Report, disclose, relieve
Form 1040 with the Indian income reported, FBAR and Form 8938 where required, Form 8621 for PFICs, and Form 1116 for the credit.
File and plan the next year
We e-file, then tell you what to change in withholding, holdings or structure before the next season rather than after it.
Pricing
Form 1040 with Indian income reporting
Arrival year with both options computed
Foreign account and asset disclosure
Per spouse or dependent
Final pricing depends on the complexity of your case. Contact us for an exact quote.
Frequently Asked Questions
Am I a US tax resident on an H-1B?
Usually yes, once you meet the substantial presence test — broadly 183 days on the weighted three-year calculation, counting the current year in full, a third of the prior year and a sixth of the year before. Unlike F-1 and J-1 holders, H-1B holders are not exempt individuals, so your days count from the day you arrive. In your first year you are often resident for only part of the year, which is what makes that return harder than every one after it.
Do H-1B holders pay US tax on Indian income?
As a US tax resident, yes. The US taxes residents on worldwide income, which includes Indian salary earned before you moved, NRE and NRO interest, rental income, dividends and capital gains — whether or not the money is ever remitted to the US. Reporting it does not mean paying twice: tax already paid in India, including TDS, is generally creditable on Form 1116, and the India-US treaty provides further relief. But the reporting itself is not optional, and the credit only arrives if it is claimed.
Is my NRE interest taxable in the US?
Yes, and this is the most common single misunderstanding we see. NRE interest is exempt under Indian law for non-residents of India — that is a fact about Indian tax, and it has no bearing on your US return. To the IRS, as a US resident, NRE interest is ordinary interest income and fully taxable. People miss it precisely because they have been correctly told it is tax free. NRO interest is taxable in both countries, usually with TDS deducted in India, and that Indian tax is creditable against the US liability.
What happens to my Indian mutual funds on a US return?
They generally become PFICs — passive foreign investment companies — reported on Form 8621. The default excess-distribution regime can tax gains at the highest ordinary rate for the years involved and add an interest charge, which frequently produces a worse outcome than an equivalent US fund would. Elections exist that improve it, but the QEF election requires annual information most Indian fund houses do not provide to US investors. This is the most expensive surprise in this whole area, and it is much cheaper to review before you add to those holdings than after.
Do I need to report my Indian bank accounts?
If the combined highest balance of all your foreign financial accounts exceeded $10,000 at any point in the year, you must file an FBAR — FinCEN Form 114, filed with FinCEN rather than the IRS. It is an aggregate test across every account, not per account, and it uses the peak balance rather than the year-end figure, so one large transfer can trigger it even on accounts that are normally near-empty. NRE, NRO, savings, fixed deposits and Indian demat accounts all count, including accounts held jointly with a parent. Form 8938 is a separate FATCA disclosure filed with the return at higher thresholds. Many people must file both.
What is the first-year choice and should I make it?
It is an election that lets you be treated as a resident from a chosen date in your arrival year instead of filing dual-status. It can help, because residents get the standard deduction and can file jointly, but it also pulls more worldwide income into the US net — including Indian salary earned before you moved. Which is better depends on how much Indian income you had that year and whether you have a spouse to file with. It is worth computing rather than defaulting to it.
Can I file jointly with an H-4 spouse who has no SSN?
Yes, by applying for an ITIN on Form W-7, submitted together with the return rather than in advance. Filing jointly gives a larger standard deduction and generally better brackets, so for a single-earner household it is usually worth doing. If your spouse is a non-resident you can elect to treat them as a resident in order to file jointly, which also brings their worldwide income into scope — we weigh that before recommending it.
What about my Indian provident fund — EPF or PPF?
This is genuinely unsettled and we will not pretend otherwise. The India-US treaty does not contain a clear provision equating Indian provident funds to US-qualified retirement plans, and there is no single authoritative answer covering how contributions, accrued interest and eventual withdrawals should be treated on a US return. Positions taken in practice range widely, and the reporting question — whether the balance belongs on an FBAR or Form 8938 — is more clear-cut than the taxation question. This is one to review on your specific facts rather than apply a rule of thumb to, and we will tell you where the uncertainty sits rather than assert a position we cannot support.
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Learn moreBackground reading and tools
The guides cover the federal treatment in detail. The calculators let you check a number before you commit to anything.
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