FICA Payroll Taxes Must Be Withheld From Employees Switching From F-1 To H-1B Status*

As a reminder, employers need to be mindful when foreign national employees change from a nonimmigrant status exempt from Social Security and Medicare withholding under the Federal Insurance Contributions Act (FICA) to a status in which all payroll taxes apply.

This time of year, many recently hired foreign national employees in the U.S. are making the switch from F-1 student status to H-1B temporary worker status. As foreign born students prepare to graduate from U.S. colleges and universities, they often take advantage of Optional Practical Training (OPT), which authorizes them to work for any employer in their field of study for one year or more. Employees working pursuant to F-1 OPT (as well as employees in J-1, M-1 or Q nonimmigrant status) are generally not subject to Social Security or Medicare tax withholding under the FICA. The same exemption generally applies to foreign national students working pursuant to F-1 Curricular Practical Training (CPT). The exemption does not apply to foreign nationals present in the U.S. in F-1 status for five years or more, as they are then considered resident aliens eligible for FICA withholding.

However, when employers decide they want to retain an employee hired pursuant to F-1 OPT indefinitely and file an H-1B petition on behalf of that employee, they must remember to begin withholding FICA taxes as soon as the approved H-1B petition takes effect. In many cases, the employer requests a Change of Status on behalf of the employee, and following approval of the H-1B petition, the employee’s immigration status changes automatically from F-1 to H-1B on the effective date of the petition (October 1, 2014 or later). For petitions that do not request a Change of Status, the employee must apply for an H-1B visa at a U.S. consular post abroad and then re-enter the U.S. using the new visa to activate his or her H-1B status. In either case, the employer must be sure to correctly identify the H-1B effective date so that all applicable taxes can be properly withheld from the employee’s wages beginning on that date.

*Thank you to Paralegal Frank Drust for his contributions to this article.