H1B Lottery – More Information
For someone going on an H1B lottery to the US for the first time from India, there’s a lot to consider by way of finances and taxation. Not to take the excitement out of going to a new country and the career adventures that lie ahead (on the contrary, we want you to be prepared so that you don’t have to pay the price later), we’ve outlined how this might impact your stock options.
If you’re an employee of a company in India which is a 100% subsidiary of the US and you’ve got stock in the US entity, here are the 3 scenarios we’ve considered for non-qualified stock options (NSOs):
NSOs (exercised, Held and sold later)
- Vesting through the date of move of employment is considered earned in India and taxed in India on exercise.
- As long as you were in India you needed to hold it for 2 years for Long term.
- Once you are in the US, you only need to hold it for 1 year for Long term treatment.
- If you are in US when you sell only US taxation is applicable (nothing in India on sale)
NSOs (vested but not exercised)
- When you exercise, the income has to be apportioned to US and India, and also taxed in the proportion to the number of days in each country for that vest amount.
- If by then you are the USA, you will be taxed on it in the state of residence as well. You will be subject to Social security and Medicare too.
- If you do plan to exercise, please do so before the date of move if already vested.
NSOs (exercised, held and Intending to sell)
- If already exercised and taxed in India at the time of exercise.
- You wish to sell with no US impact, you may want to sell before the move.
- This saves US and state tax but Indian tax will apply.
- Ask your accountant which is better for you and if this is 2 years from hold date in India.
Buying Assets in your name
- Ask your family to consult you before the buy anything in your name (there will be tax implications).
- If they do, they should inform you and you can deal with the reporting proactively
Transferring funds to your accounts
- Same deal – ask your family to talk to you. There are limits here on what you can receive.
- FEMA thresholds may have to be considered
- Mutual funds have negative consequences but not for everyone. Depends on your state of residence and the tax rate
- Not all Investments might work
Director of a company & Ownership in an Indian company
- Do think twice about this, because reporting obligations apply. Owning more than 50% in an Indian company obligates you to report income in the US.
- You will need to report these accounts to the IRS if the account singularly or collectively exceeds $10K in the year.
- Joint accounts will need to be reported
Other financial Assets (8938)
- Financial assets including bank accounts find place in this form.
- Thresholds apply and vary if you are single to filing joint.
- Once you are in the USA, $100K (MFJ) and $50K (Single) become the thresholds
PFICs (Indian Mutual funds)
- Have to be marked to market each year
- The tax impact may outweigh the returns
- If gains are significant consider liquidating before the move
If you’re about to go to the US on an H1B visa, know the requirements and differences of SSN (Social Security Number) and ITIN (Individual Taxpayer Identification Number).
- This is the equivalent of a PAN in India.
- The company/ employer should needs to apply for this on behalf of the applicant.
- Will be needed for a US Bank account.
ITIN for the family
- Your spouse and children will need the ITIN (not applicable if you’re single).
- ITIN is more or less the same as SSN but for persons not yet eligible to work in USA.
- One needs to apply for this in person.
- When an SSN is issued in future for your spouse or child, it will replace the ITIN.
- Essential to be added to bank account or as dependents on a return.
And with that, we’d like to wish new H1B visa holders headed to the US for their career prospects the very best.