Payroll withholding required for new H-1B employees

Employees whose H-1B cap subject petitions have been approved for a change of status will convert to H-1B status on Oct. 1.

Payroll departments should be aware that H-1B employees are subject to FICA withholding, and should pay particular attention to employees who are currently exempt but who will become subject to withholding when their status changes Oct. 1. This category typically includes F-1 students employed under the Optional Practical Training (OPT) program whose H-1B petitions filed April 2015 have been approved. (Note: H cap subject employees whose petitions were approved with consular notification will be subject to FICA withholding when the employees obtain their visas and enter the U.S. in H-1B status.)

Employers should also update Form I-9, Employment Eligibility Verification for students on “cap-gap” extensions of the OPT program. This extension automatically ends Oct. 1 for H-1B visa holders, and employers must ensure that Form I-9 is properly completed to reflect these employees’ eligibility to work in the U.S.

Generally, non-U.S. resident employees are taxed on wages for work performed in the U.S., unless they fall under an exemption. Some categories of employees, such as students and trainees, are exempt from withholding for designated periods. Students present on F-1 visas, for example, are often exempt for five years. Nevertheless, employers should be prepared to justify any claimed exemption or exclusion from withholding.

BAL Analysis: Employers and their payroll departments should be aware of FICA withholding rules for new H-1B cap workers and existing employees who will be converting to H-1B status Oct. 1. The wage offered in the I-129 petition and Labor Condition Application will become effective Oct. 1.

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