Strategy Tip: Consular Process H-1B to Save FICA Taxes for F-1 Students

How H-1B lotto winners and their employers can save $18,000 or more EACH, by keeping F-1 STEM OPT alive until the last minute

Many employers of F-1 Foreign Students are unaware that they need NOT withhold FICA taxes OR make an employer contribution.  Most F-1s are exempt from paying for FICA – Social Security.  The IRS website provides a complete list of foreign nationals who are not subject to FICA .  Any overpayment of FICA can always be claimed as part of a refund, but why pay it in the first place?

The contribution by employer and employee is 6.2% each (13.4% total) of gross income.  For an employee making $100,000 a year, that’s $6,200 in savings annually.  All F-1s get the initial one-year EAD Employment Authorization Document.  F-1s who qualify for the STEM OPT Science Technology Engineering Math – Optional Practical Training can get an additional 2 years.

Three years of OPT x $6,200 = $18,600 of TAX SAVINGS for the F-1 Employee.  Same savings for the Employer!  The total is over $37,000.

Now here’s the golden choice:  What does today’s H-1B lottery winner do?  Transition to H-1B on 1 October, and start paying FICA?  Or keep working via STEM OPT EAD until the H-1B authorization period ends?

For this year’s H-1B lottery winner with two years of STEM OPT ahead, it’s potentially a $37,000 question.

ACTION ITEM ONE:  To avoid paying FICA for the near term, get the H-1B visa petition approved by USCIS, but DON’T request a CHANGE of STATUS from F-1 to H-1B.  Select the Consular Processing option when filing the H-1B petition.  Put the Approval Notice in your back pocket.  Use it LATER, when you need it – when OPT runs out.

This may sound risky.  What if the employment relationship ends?  Doesn’t the employee want to have the safety of “nailing down” selection in the H-1B lottery?  Nailing down selection in the H-1B lottery (assuring cap exemption for future H-1B petitions) requires beginning work with the H-1B employer in H-1B status or obtaining an H-1B visa from an embassy or consulate abroad.

Answer:  YES there is some risk, but why not have your cake [security] and eat it, too [tax savings].

ACTION ITEM TWO:  After approval of your H-1B Consular Processing Petition by USCIS,  get an H-1B Visa foil impressed into the passport at the earliest possible moment.  BUT return to the US before 21 Sept 2022 as an F-1 Foreign Student.

Requirement:  you must have or be able to get a F-1 Student Visa valid through 21 Sept 2022.  Your ability to travel internationally as an F-1 on OPT will be limited by the expiration date of your current or future F-1 Visa.

Be sure to check Reciprocity rules to verify that the expiration date of your new H-1B visa will extend beyond the expiration of your STEM OPT EAD.

ACTION ITEM THREE:  When you return to the US with two valid visas in your passport, don’t let CBP Customs and Border Protection at the airport make any mistakes.  INSIST on being admitted as an F-1 Foreign Student.  Put a yellow Post-It note on the F-1 visa so the CBP Officer doesn’t absent-mindedly find your H-1B visa first, and admit you prematurely as an H-1B.

ACTION ITEM FOUR:  When your OPT EAD card is about to expire, it’s time to depart the US and return as an H-1B.  When you come back, use your H-1B visa.  Put that yellow Post-It sticker on the H-1B visa, so that your favorite CBP officer doesn’t admit you as an F-1 again.

IMPORTANT CONSIDERATIONS: 

  • Be sure to clear the strategy with tax adviser and immigration attorney. US tax laws are complicated and an individual analysis of your situation is important.
  • Keep in mind that USCIS sometimes incorrectly terminates student status in the SEVIS database when an H-1B petition is approved using consular notification. When this happens, the DSO at the school has to request a “data fix” to reinstate F-1 status and OPT employment authorization after the H-1B is approved using consular processing.
  • Ongoing COVID-19 US Embassy closures / limitations have created significant risk of delays in visa processing and return to the U.S. It is impossible to know when visa appointments will return to pre-COVID-19 processing times.

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