Reminder: H-1B Employers Must Withhold FICA

Harris Beach PLLC

October 1 marks the beginning of the federal government’s fiscal year, as well as the H-1B employment start date for thousands of workers. Most people who change status to H-1B under the H-1B lottery system initially came to the United States on a student visa. After graduation, international students typically are afforded a 1-year period of employment authorization known as Optional Practical Training (“OPT”). A grant of OPT allows the student to work for any U.S. employer, or to be self-employed, so long as the employment is related to his or her completed course of study.

Most international students use their OPT grant to gain additional experience and training, and also to prove their value to their employer, in order to secure H-1B sponsorship. Only a U.S. employer can register a worker in the H-1B lottery for a chance at obtaining one of the limited numbers of H-1Bs available each fiscal year; the workers cannot enter themselves. Thus, a job offer from a willing employer is required.

The odds of selection in the H-1B lottery are typically low, though they vary from year to year depending on the volume of potential applicants. Last year, due to a high volume of filing, the odds of selection were only about 1 in 4. For those fortunate enough to be selected in the lottery, an H-1B petition must still be filed and approved, typically for an H-1B employment start date of October 1.

In general, employers of F-1 students are not required to withhold FICA taxes; according to the IRS, they generally do not meet the “substantial presence” test that determines whether such withholdings are required. However, once that same employee’s status has changed to H-1B, typically on October 1, those withholdings are required, according to the IRS. Therefore, on the October 1 start date for many workers’ H-1B status, employers likely have to not only reverify such employees’ I-9 records to reflect their change in employment authorization basis, but also amend their payroll and withholding records accordingly to ensure compliance with IRS regulations.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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