Yellow Business Services
H-1B & Dual-Status Tax Specialists

OPT to H-1B:
The Tax Transition Guide

Moving from F-1 to H-1B is a career milestone, but it creates a messy "Dual-Status" tax year. Incorrect filings can lead to IRS audits, lost refunds, and issues with future Green Card applications.

✅ IRS Dual-Status Compliant 📈 RSU & Stock Options ⚖️ FICA Refund Experts

1. The Transition Year Timeline

For most H-1B approvals (Cap Subject), your status changes on October 1st. This splits your tax year into two distinct legal phases.

1

Jan 1 – Sept 30 (F-1 Status)

You are typically a Nonresident Alien (if within your 5-year exempt period).
✔ FICA Exempt: No Social Security/Medicare tax.
✔ Bank Interest: Tax-free.
✖ Global Income: Only US income is taxed.

2

The "Cap-Gap" (April – Sept)

Even if your OPT card expires, Cap-Gap extends your work authorization. Crucial: Your tax status does not change yet. You remain FICA exempt. Watch your paystubs closely during these months!

3

Oct 1 – Dec 31 (H-1B Status)

You become a Resident Alien (for tax purposes) if you pass the Substantial Presence Test.
✖ FICA Required: 7.65% tax begins immediately.
✖ Global Tax: You are now taxed on worldwide income (home country accounts, family investments).

2. H-1B "Paycheck Shock" Calculator

On October 1st, your take-home pay will decrease by 7.65% because you lose the FICA exemption. This often catches new H-1B holders by surprise.

3. Choosing How to File (Critical)

You cannot use standard software like TurboTax for this year. You have two complex choices.

Feature Option A: Dual-Status Option B: First-Year Choice
Tax Status Part Nonresident / Part Resident Treat as Resident for Full Year
Standard Deduction ❌ Not Allowed ($0) ✅ Allowed ($14,600+)
Global Income Only taxed Oct-Dec Taxed Jan-Dec (Full Year)
Joint Filing Not allowed (MFS) Allowed (MFJ) *Requires statement
Best For... Single filers with high foreign income Married filers or those with low foreign income
⚠️ Complexity Warning: "First-Year Choice" requires attaching a specific statement to your return citing IRC § 7701(b)(4). Failing to attach this statement invalidates the election. We draft this statement for you.

4. The Hidden Traps: RSUs & Foreign Accounts

Tech professionals often face double taxation issues during the transition.

📉 RSU Double Taxation

If you were granted RSUs while on F-1 status (Nonresident) but they vest while on H-1B (Resident), taxation gets complicated.

  • The Risk: Your home country might tax the grant, and the US taxes the vest.
  • The Fix: You may need to claim Foreign Tax Credits (Form 1116) to avoid paying twice.
  • Cost Basis: Ensure your brokerage (E*Trade, Fidelity) has the correct cost basis, or you will be taxed on the full amount!

🌍 FBAR (FinCEN 114)

Once you become a Resident Alien (Oct 1), you fall under FBAR rules.

  • The Rule: If the aggregate value of your foreign accounts exceeds $10,000 at any time.
  • What Counts: Savings, checking, mutual funds, and life insurance with cash value in your home country.
  • Penalty: Starting at $10,000 for non-willful failure to file. Do not skip this!

5. State Residency Traps

Did you move for your new H-1B job? State residency rules differ from federal ones.

New York

The 183-Day Rule
Even if you are a federal nonresident, spending >183 days in NY makes you a full-year NY Resident. You may need to file IT-201.

California

Domicile Test
CA is aggressive. If you have an H-1B, they assume you are a resident from day 1 of arrival. Global income is taxed immediately.

Massachusetts

No Treaties
MA does not honor most federal tax treaties. You may owe state tax on income that is federally exempt.

6. Frequently Asked Questions

Can I use TurboTax or Sprintax?
It is risky. Sprintax is good for Nonresidents (F-1) but struggles with the "Resident" portion of H-1B. TurboTax is for Residents and cannot handle the Dual-Status statement. Using either often leads to incorrect filings.
What if my H-1B was denied or I am still on Cap-Gap?
If you finish the year on F-1 status (Cap-Gap), you likely remain a Nonresident Alien for the full year. You would file Form 1040-NR and Form 8843.
Does my H-4 spouse need to file?
H-4 dependents must file Form 8843 if they are nonresidents. If you choose the "First-Year Choice" to file jointly, your spouse must also agree to be treated as a resident for tax purposes (requiring an ITIN).
I forgot to tell my employer to start FICA taxes. What now?
If you underpaid FICA taxes, you don't usually pay this on your tax return. Your employer may deduct the arrears from future paychecks, or send you a bill.

Professional Filing Packages

We specialize in H-1B transitions. Every return includes a CPA review.

Standard

$89

No Status Change

  • ✅ Federal 1040 or 1040-NR
  • ✅ 1 State Return
  • ✅ Electronic Filing
Select Standard
RECOMMENDED

Dual-Status

$199

F-1 to H-1B Transition

  • ✅ Dual-Status Statement
  • ✅ First-Year Choice Election
  • ✅ FICA Refund Review
  • ✅ Treaty Analysis
Select Dual-Status

Complex / RSU

$249+

Investments & FBAR

  • ✅ RSU Cost Basis Adjustments
  • ✅ Crypto Reporting
  • ✅ FBAR (FinCEN 114) Filing
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