Employees obtaining new H-1B status are subject to FICA withholding

As the first day of the new fiscal year, Oct. 1 also marks the date when individuals with approved H-1B cap petitions obtain their new status. Employers should be aware that FICA withholding applies to these employees.

“October 1 is a clean-slate, new day for F-1 students changing to H-1B status and employers need to make sure they are compliant with payroll withholding for H-1B workers,” said Liane Cooney, a partner in the McLean, Va. office of Berry Appleman & Leiden LLP.

Payroll departments should pay special attention to students converting from F-1 status under the Optional Practical Training (OPT) program to H-1B status as of Oct. 1, as these individuals are already working for employers in an exempt status and thus may not be detected. F-1 students are generally exempt from FICA withholding for five years, including students in the fields of science, technology, engineering or mathematics employed under OPT status.

Additionally, employers should make sure that they update the I-9 paperwork for students who were on a “cap-gap” extension of OPT and are converting to H-1B status as of Oct. 1. This is because these F-1 “cap-gap” employees’ employment authorization documents would have expired after April 1 but the “cap-gap” regulations allow those students to remain in OPT status to bridge the interval between the expiration of OPT and the start of their H-1B status on Oct. 1.

Nonresident employees are generally taxed on wages for services performed within the U.S. unless they are exempt. Some nonresidents, such as students and trainees, are exempt from withholding for certain designated periods. Employers should be prepared to justify an exemption or exclusion from withholding.

BAL Analysis: HR managers should communicate with internal payroll departments to be mindful of the FICA withholding rules for new H-1B cap workers and F-1 students converting from OPT to H-1B status.

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