Most of the popular tax software and tax consultants may treat H1, L1 tax returns no different than ordinary US citizen Tax Returns. However, IRS regulation allows for special treatment in case of temporary workers in the US. There are specific guidelines in the IRS code to determine the tax status as well as calculate deductions based on special conditions due to temporary work status. Since H1, L1 tax payers account for less than 1% of all Tax Payers, most popular tax software and tax consultants may not pay specific attention to the regulations that govern US temporary worker taxes. Perhaps it is not cost effective for the big tax software companies to invest in programming code that covers H1, L1 special tax situation.
H1, L1 Dependent Tax Deductions, ITIN
Once your tax residency has been established, H1, L1 workers may be able to take full deductions for their spouses and dependent family members. In case dependents do not qualify for a social security number, they may be eligible to get an ITIN (Individual Taxpayer Identification Number). ITIN Application is a paper process along with the tax return. Unfortunately you may not be able to e-file your taxes in many states in the first year that you apply for ITIN.
The IRS issues ITINs to individuals who are not eligible for a Social Security Number. The requirements for obtaining an ITIN are different than other U.S. government applications, depending on the applicant’s immigration and tax status. Only non-U.S. citizens can apply for an Individual Taxpayer Identification Number. Individuals who already have a valid Social Security Number cannot apply for an ITIN. It is illegal to have both a Social Security Number and an ITIN. Individuals who have a valid Social Security Number should file taxes using their Social Security Number, not use an ITIN.
Immigration and Taxes Matters Together
Many H1, L1 workers may be in the immigration process for their Green Card and eventually their Citizenship. During approval for the Green Card as well as Citizenship, having your tax status clear with the IRS is critical. Pending tax audits, penalties or tax dues, may negatively impact your immigration case as well as your potential to sponsor others. Having a good immigration lawyer and a reliable tax accountant may provide some peace of mind as you go through the immigration and tax matters together.
Another emerging risk that IRS and tax community is observing is the trend in getting taxes filed by preparers outside the country. Many small and large sized tax service companies have outsourced tax preparation with tax preparers outside the US filing taxes on behalf of their clients. In most cases, all is well until an IRS audit gets triggered. You will definitely need someone that is authorized to represent you in front of the IRS and based in the US. Putting at risk your entire immigration process to save a few dollars in tax preparation fees may not be a wise decision in the long term.
