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As a non-US citizen, I have been working for a US employer remotely from outside the USA since July 2022 (previously in USA with H1B visa for 5.5 years, and waiting for green card processing since H1B is almost expired). I am planning to return to USA after getting i140 approval in May 2024.

My employer continued to pay me in USA to date and withheld federal and FICA taxes. I still have US address on the W2 since employer said they cannot use a foreign address.

For 2023 federal income tax, I am considered a Non-resident alien under the substantial presence test.

I found on the IRS website:

wages earned by nonresident aliens for services performed outside of the United States for any employer are foreign source income and therefore are not subject to reporting and withholding of U.S. federal income tax.

Based on the above, I am not subject to federal income tax for 2023.

  1. Is it possible to get a refund for all federal tax withheld (including FICA taxes) and how should I file for a tax refund for 2023? (currently not paying taxes to home country)

  2. In order not to raise suspicion from the IRS, the easiest option might be filing as a resident alien using form 1040 and paying taxes as usual, but this may cause issues on the green card application when they review the past tax records, since I cannot work in USA during this time as a resident.

Which of the above is the best option?

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  • 3
    Note that you most likely owe taxes and similar charges in your country of residence.
    – jcaron
    Feb 26 at 10:51

3 Answers 3

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Is it possible to get refund for all federal tax withheld (including FICA taxes) and how should I file tax refund for 2023? (currently not paying tax to home country)

You can potentially get refund of the FICA taxes. If the employer is not willing to correct this, there's a process described here. It may take a while.

The income tax withholding can be used as tax paid on form 1040NR, which would lead to a refund.

In order not to raise suspicion from IRS, the easiest might be filing as resident alien using form 1040 and pay taxes as usual, but it may cause issue on the green card application when they review the past tax records, since I cannot work in USA during this time as a resident.

What suspicion? You've done nothing wrong. You're not working in the USA, and you're not claiming to be a resident. You may need some explaining to do as to why the employer continues treating you as a US-based employee, so document your email exchanges where they try rationalize that to you, and show to the USCIS/IRS folks if asked. As long as you didn't lie and didn't represent yourself as a US resident/citizen, you've done nothing wrong.

Filing 1040 as a resident, on the other hand, would be very wrong and may lead to an adverse action by the USCIS.

If you're concerned, I suggest discussing this with an immigration attorney.

You do need to remember that in the situation you're describing your employer may be violating the labor laws of your home country (not the US, the country where you currently are). You may be seen complicit by the local authorities. But it's none of the US government's business.

If you're not reporting this income with your home country, you may end up with tax evasion charges. Especially if the US and your home country have a sharing agreement.

Talk to a local tax adviser.

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  • To be clear, are you suggesting that they enter "0" on their 1040-NR, line 1a ("Total amount from Form(s) W-2, box 1 (see instructions)")?
    – user102008
    Feb 26 at 1:34
  • What is usually done is reporting the amounts on W2 as is, and then backing them out as negative misc income (schedule 1 line 8z).
    – littleadv
    Feb 26 at 3:05
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You need to file the US Nonresident Tax Form 1040-NR. That will include asking you about money withheld for taxes, which is a number your employer should give you on a W-2 form.

Filling out the forms will tell you (and the government) how large a tax refund you are entitled to.

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  • The problem is, none of their wages is taxable in the US, so their wages should be reported as 0 on their 1040-NR. But they got a W-2 which presumably lists federal taxable wages.
    – user102008
    Feb 25 at 18:08
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    @user102008 reporting doesn't establish tax. They're entitled to refund of all the withholding, and W2 claiming wages are taxable is not a legal determination. If they can prove their facts - their wages are not taxable in the US.
    – littleadv
    Feb 25 at 19:26
  • @littleadv: Right. My point is that it's not a simple case of just filling out the forms based on whatever it says on the W-2.
    – user102008
    Feb 25 at 22:16
  • I would assume that the instructions for that particular form address that issue. I could be wrong. If unclear, hiring a paid tax preparer who has experience with Nonresident taxes shouldn't be very expensive, and if you do that once to get their advice you may not need them again.
    – keshlam
    Feb 26 at 15:05
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Under the rules, you were a nonresident alien for 2023. It's not up to you to choose to file as a resident alien (unless you are married to a US citizen or resident alien; I won't go into that). So filing as a resident alien would be wrong and fraudulent. You need to file as a nonresident alien.

Wages from services performed outside the US is not US-sourced income, and as a nonresident alien, you are not subject to US taxes on that non-US-sourced income. In addition, you are not subject to FICA taxes on wages from services performed outside the US as a nonresident alien.

You can use Form 843 to seek a refund of FICA taxes withheld in error (i.e. they should not have been withheld in the first place, as in your case). This is separate from the income tax return filing, and may take years to get a result.

You can get a refund of your income tax withheld by filing a tax return which shows that the amount withheld is greater than the amount you were supposed to pay (which in your case is 0). As a nonresident alien, you would file form 1040-NR. The tricky question is how exactly to fill out your 1040-NR. You know that the taxable income needs to be 0. The question is what do you put in line 1a ("Total amount from Form(s) W-2, box 1 (see instructions)").

In the 1040-NR instructions for line 1a, there is an "exception" which says,

Enter on line 1a of Form 1040-NR only the wages, salaries, tips, and other compensation reported in box 1 of Form(s) W-2 effectively connected with a U.S. trade or business. Only U.S. source income is included on line 1a as effectively connected wages.

Since the wages on your W-2 are all non-US-sourced, I believe this means you can simply put 0 in line 1a, and this will result in a taxable income of 0.

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  • Technically that is correct, but that would lead to a matching error and potentially unnecessary interactions with the IRS. Reporting and then backing it out is the standard way to avoid matching errors and notices.
    – littleadv
    Feb 29 at 9:01
  • @littleadv: Do you have an official source for this kind of backing out procedure for this situation? The only thing I am aware of that is similar is for W-2 income of resident aliens exempt by a tax treaty, where they enter the income in line 1a and then back it out in Schedule 1, like 8z, writing "Exempt income". But 1) the OP is not using a tax treaty, and 2) even if they were, and nonresident alien income exempt by a tax treaty is not included in line 1a anyway (it is entered in line 1k).
    – user102008
    Feb 29 at 18:29
  • This is a standard pattern to help the IRS computer match the reports. Reporting 0 in line 1 is technically correct, but will trigger a notice. For treaties you're actually not entirely correct - there's a special form to claim treaty benefits
    – littleadv
    Feb 29 at 18:42

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