New H-1B Status Holders Become Subject to FICA Withholding

October 1 is the first day of the government fiscal year and also the date when H-1B “cap” applicants in the U.S. have their status changed automatically to H-1B.    This is a reminder that employees who may not have been subject to FICA taxes previously (for example, F-1 status holders) are now subject to such withholding. 

H-1B Employees’ Tax Treatment

According to IRS,

For FICA (social security and Medicare) and FUTA taxes, an H-1B employee is treated the same as a U.S. citizen when providing services to a U.S. employer within the United States. The exemption allowed by IRC section 3121(b)(19) does not apply to H-1B non-immigrant status.

See IRS Alert, “Employers Must Withhold FICA Taxes for Aliens who Change Visa Status to H-1B”

Employers and their payroll departments should consider F-1 students (likely working using OPT or CPT) who have secured an H-1B petition and change of status approval under the H-1B “cap” process.    F-1 students are generally exempt from FICA withholding for a period of time; however, once their status changes automatically to H-1B (normally as of October 1st), they immediately become subject to FICA taxes.    Other categories of workers who may have been exempt from FICA are workers on J-1, M-1, or Q-1 status.

Conclusion

It is important for HR/immigration departments to communicate with payroll departments to ensure that any necessary FICA withholding adjustments with respect to H-1B cap employees are done timely.

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