Your first US tax return after arriving on an H-1B or L-1

A new H-1B or L-1 arrival usually lands in the middle of a year with a US salary, relocation money, bank accounts in India and no clear idea which tax form applies. The first return sets your status, your day count and your Indian reporting for the years that follow, so it is worth getting right.

Step 1: work out which return you owe

Your first year in the US may not be a resident year at all.

• You arrived late in the year. The substantial presence test needs 183 weighted days. With fewer days than that and no earlier visits you are usually a non-resident for the arrival year and file Form 1040-NR. Your first full year is then your first resident year.
• You arrived early, or on a green card. If you meet the test, or hold a green card, you are a resident from your first day in the US, and the year is dual-status: one return that treats the months before and after differently.
• You came from F-1 or J-1. Your exempt days do not count towards the test. See the student article.

A non-resident return has its own limits. Most non-residents cannot take the standard deduction, and the treaty exception is for students and business apprentices from India, not for people on work visas. Commercial resident-return software will prepare the wrong form without warning, so check the status first and the software second.

Step 2: gather the documents

1. Passport, visa, I-797 approval notice and I-94 record, plus a dated list of every entry and exit. This is your day-count evidence.
2. Your SSN. Apply at the Social Security office after arrival, allowing about ten days for your immigration record to reach them. Do not wait until April.
3. W-2 from the US employer, and a statement of any relocation payments.
4. Forms 1099-INT, 1099-DIV and 1099-B from US banks and brokers.
5. Year-end and highest balances for every Indian account (see below).
6. Indian income documents: Form 16A or bank interest certificates, rent receipts, and sale papers for anything you sold.
7. Your state's withholding and residency details.

Step 3: Indian accounts and income from your first resident day

From the day you become a US tax resident, the world is on the return. In practice:

• Interest on NRE and NRO accounts and Indian fixed deposits is taxable in the US even where India exempts it. NRE interest is tax-free in India but not in America. See the NRE and NRO article.
• FBAR (FinCEN 114) is due if your Indian accounts together exceeded $10,000 at any point in the year. It is filed separately, and the due date of April 15 carries an automatic extension to October 15.
• Form 8938 is attached to the return when your foreign financial assets pass the threshold: for a single person living in the US, $50,000 at year end or $75,000 at any time; for joint filers, $100,000 and $150,000. See FBAR and Form 8938.
• Indian mutual funds are PFICs for US purposes and are taxed harshly if left alone. Do not buy more before you read the PFIC article.
• Rent from a house in India goes on Schedule E.

On the India side, someone who leaves India for employment is generally tested on the 182-day rule for the year of departure, and banks will ask you to convert resident savings accounts to NRO. Do that on time, and keep the days-in-India count for each later year.

Step 4: what you were paid to move

Relocation reimbursements and signing bonuses are generally taxable wages and appear on your W-2. There is no deduction for moving costs for most people. Bonuses are often withheld at a flat supplemental rate, which can be below your true rate, so check withholding before the year ends.

Step 5: the state return

State residency is a separate question from federal residency. Some states tax from the day you move in, some follow the federal split, and a few have no income tax. See state taxes.

Mistakes we see in first returns

• Filing a resident return for a non-resident year, or the reverse.
• Leaving Indian accounts off FBAR because they are "small" or dormant.
• Leaving interest on NRE accounts out because it is tax-free in India.
• Claiming parents in India as dependents (they do not qualify).
• Forgetting that the FICA tax on an H-1B starts with the first paycheque.

The status call in your first year decides everything that follows. If you are unsure, settle it before you prepare anything else.