UNEMPLOYMENT COMPENSATION; INCOME TAX; IMMIGRATION; EMPLOYMENT (GENERAL);

IMMIGRATION AND NATURALIZATION;

OLR Research Report


June 19, 2003

 

2003-R-0475

TEMPORARY FOREIGN WORKERS AND FEDERAL AND STATE INCOME TAXES

By: John Moran, Associate Analyst

You asked (1) if a temporary foreign worker in the U. S. on a H-1B visa is exempt from paying state and federal income taxes and (2) if such a worker is laid off in Connecticut is he eligible for unemployment compensation.

SUMMARY

In general, foreign workers in the U. S. on temporary work visas must pay state and federal taxes. The person’s federal tax liability ultimately depends on the nature of the tax treaty (if there is one) between the U. S. and the person’s home country, but most treaties do not exempt these workers from U. S. taxes. In Connecticut, the state Department of Revenue Services requires all foreign workers in the state to pay state income taxes regardless of their federal tax status. Since the state does not recognize treaties between the U. S. and other nations for income tax purposes, the treaties have no effect on the person’s state tax liability.

Temporary foreign workers laid off in Connecticut are not eligible for unemployment benefits because they are not eligible and available for other work here. The U. S. State Department can issue a temporary H-1B work visa only upon an application by the company providing the employment. If the company lays off the worker, his visa no longer has the required sponsor. He cannot work legally in the U. S. and being unable to work legally means he does not qualify for unemployment benefits. (For more information on the H-1B visa program see OLR report 2003-R-0020. )

TAX TREATMENT OF ALIENS

For tax purposes any alien (a person living in the U. S. who is not a citizen) is subject to federal income taxes pursuant to the federal tax code and whether the U. S. has a tax treaty with the person’s home nation. Aliens are classified as either resident or non-resident aliens. Resident aliens either have a government issued “green card” or have been in the U. S. for more than 183 days (six months) during the last year. A nonresident alien generally is someone who has been in the U. S. fewer than six months. (For more information on determining these classifications and other alien tax matters see the Internal Revenue Services’ U. S. Tax Guide for Aliens. )

Resident aliens are generally taxed the same way as U. S. citizens. Nonresident aliens are taxed on income from sources within the U. S. and on certain income connected with trade or business conducted in the U. S. Generally, resident aliens do not benefit from tax treaties, although there are exceptions. Nonresident aliens from countries with tax treaties with the U. S. may qualify for certain tax breaks. Most treaties require the person be a resident of the country of origin in order to qualify.

A person in the U. S. with an H-1B visa could be either a resident or nonresident alien. Since these people are usually in the country for either three or six years (the initial three-year visa can be renewed for three more years), most would become resident aliens at least by their second year. (They would not become resident aliens in the first year if they come over more than six months through the tax year. )

The IRS Tax Guide for Aliens shows the U. S. has tax treaties with 54 countries. They include Canada, China, Egypt, France, Germany, India, Jamaica, Japan, South Korea, Mexico, Pakistan, Russia, and the United Kingdom.

JM: ro