H-1B Visa & Equity Compensation: What Changes When You're Not a US Citizen

Roughly a third of engineers at FAANG and major tech companies are on H-1B visas or transitioning through F-1 OPT. Their RSUs, ISOs, and ESPP shares are taxed under rules that differ meaningfully from what US citizens experience — and most general advisors don't know the difference. This guide covers the key issues.

Your tax residency status determines everything

The US taxes residents (citizens and "resident aliens") on worldwide income. It taxes nonresident aliens only on US-source income. Your visa type determines which bucket you fall into — and the answer isn't always obvious.

The Substantial Presence Test (IRC § 7701(b))

The IRS uses the Substantial Presence Test (SPT) to classify noncitizens as resident or nonresident aliens for a given tax year. You meet the SPT — and become a resident alien — if you were physically present in the US for:¹

• At least 31 days in the current year, AND
• At least 183 weighted days over the current year and the two prior years, counting: all days in the current year + 1/3 of days in the prior year + 1/6 of days in the year before that

F-1 and J-1 visa holders: the SPT exemption

F-1 students and J-1 exchange visitors are exempt from the SPT for a limited period — they don't count their US days for SPT purposes. For F-1 students, the exemption lasts for 5 calendar years (not 5 years from arrival — the year you first enter on F-1 counts as year 1 even if you arrived on December 31).²

During F-1 OPT, you're still on F-1 status — still exempt. When your status changes to H-1B, the exemption ends and your day-count begins immediately.

The OPT-to-H-1B transition year: dual-status

For cap-subject H-1B petitions, the start date is October 1. If you were on F-1 OPT through September 30 and switched to H-1B on October 1, you have a dual-status year: part NRA, part resident alien.

Dual-status returns are filed using Form 1040 for the resident-alien portion (generally January 1 through the last day of NRA status if you elect first-year choice, or October 1 onward if you became RA only when H-1B started) plus Form 1040-NR for the NRA portion. The rules are complex enough that you almost certainly need a tax professional for this year.

RSU taxation: how your residency status changes the math

Resident alien (most H-1B holders after year one)

Once you meet the SPT, your RSU taxation works exactly like it does for US citizens. Vest-day FMV is ordinary income, reported on your W-2. The 22% supplemental withholding rate applies at vest — but if your marginal rate is 32–37%, you'll owe the gap at filing. The same strategies apply: adjust your W-4 per our RSU W-4 guide, or make quarterly estimated payments.

Nonresident alien (F-1 OPT before transition, or early H-1B before SPT met)

As a nonresident alien, you're only taxed on US-source income. For RSUs, the IRS sources compensation based on where you actually performed services during the vesting period — not where you live when they vest.

The workday allocation formula applies per Treasury Reg. § 1.861-4(b): the US-source portion of RSU income = (US workdays during grant-to-vest period) ÷ (total workdays during grant-to-vest period) × vest-day value.³

Nonresident aliens are subject to 30% flat withholding on US-source wages unless reduced by a tax treaty. (Most H-1B holders will have met the SPT by the time their RSUs vest, making this primarily an issue in early grant-to-vest periods.)

FICA taxes: the bill you don't see coming

FICA (Social Security + Medicare) is assessed on RSU vest income just like regular wages. The rate is 7.65% on the employee side — 6.2% Social Security (up to the $184,500 wage base in 2026⁴) plus 1.45% Medicare (no wage cap, plus 0.9% Additional Medicare Tax over $200K single / $250K MFJ).

The critical timing issue:

• F-1 OPT status: Exempt from FICA under IRC § 3121(b)(19).⁵ RSUs vesting before your H-1B start date incur no FICA. Your employer should not be withholding FICA during OPT — if they are, you can request a refund via Form 843.
• H-1B status: FICA applies immediately from the first day of H-1B status. RSUs vesting on or after October 1 (for cap-subject H-1B transitions) are fully subject to FICA.

On a $200,000 RSU vest, FICA adds up to $15,300 in combined employer/employee contributions. At the $184,500 SS wage base, the marginal FICA cost drops to 1.45% after your base salary clears that threshold — which most FAANG employees will. But early in the year, if your first vest hits before clearing the wage base, you're paying the full 7.65%.

ISO exercise: what changes for visa holders

Most H-1B holders who hold ISOs will be resident aliens by the time they're in a position to exercise meaningful amounts. In that case, ISO tax treatment is identical to US citizens: exercise-and-hold triggers AMT preference, the AMT credit carries forward, and a qualifying disposition (2 years from grant, 1 year from exercise) converts the spread to long-term capital gains.

Two specific scenarios where visa status matters for ISOs:

Exercising during NRA status

If you exercise ISOs while still a nonresident alien, the spread is sourced using the same workday allocation formula as RSUs. The portion attributable to non-US workdays may not be subject to US income tax — or US AMT. Your home country may tax it instead. This creates a potential planning opportunity (or a complexity, depending on your country's rules) for employees on early-career grants who exercise before transitioning to H-1B.

Company conversion of ISOs before your departure

Some companies convert outstanding ISOs to NSOs when an employee's visa expires or when they leave the US. Check your equity plan documents. If your company does this, the conversion itself is typically not a taxable event — but you lose the ISO tax treatment on any future exercise, meaning the spread at exercise becomes ordinary income rather than a potential LTCG plus AMT credit structure.

ESPP: special issues for visa-status employees

ESPP participation for nonresident aliens is generally permitted, but the tax treatment at sale is sourced similarly to RSUs. The discount element (ordinary income at disqualifying disposition or qualifying disposition disposition income) follows workday allocation for the offering period. The capital gain portion — from exercise price to sale price — is entirely an investment return and is US-source for US-based employees.

See our full ESPP tax guide for qualifying vs. disqualifying disposition rules and the Form 3922 basis trap.

Planning before you leave the US

If you're planning to leave the US permanently — green card abandonment, visa expiration, return to home country — your equity compensation creates significant pre-departure planning opportunities.

Accelerate vest and exercise events before departure

Once you become a nonresident alien, the US only taxes US-source income. But "US-source" depends on where services were performed during the vesting period — if the vesting period spans US and foreign years, only the US-workday portion is taxed. For RSUs vesting after you leave, that US-source fraction shrinks with every day worked abroad.

Conversely, for ISOs you've already exercised and held in the US, the capital gain at sale may be entirely sourced to the US under some treaty frameworks — or may not be taxed at all in certain low-treaty situations. The analysis is treaty-specific and highly fact-dependent.

Tax treaties: a country-by-country overview

The US has tax treaties with approximately 68 countries.⁶ Whether a treaty helps with equity compensation depends on the specific treaty language — many treaties cover "salaries, wages, and other similar remuneration" in an employment income article, but few have explicit provisions for RSUs or stock options.

To claim treaty benefits, you must file Form 8833 (Treaty-Based Return Position Disclosure) with your US return. Failure to disclose can result in penalties. A tax professional who knows both US tax law and the treaty with your home country is essential — the analysis is too fact-specific to generalize.

FBAR and FATCA: foreign account reporting

Most visa-status tech employees hold their equity through US-based brokerages (Fidelity, E*Trade, Schwab, Morgan Stanley at Work) and don't have foreign account reporting obligations related to that equity. But if you:

• Maintain a brokerage account in your home country during your time in the US,
• Hold unvested equity through a foreign parent company's plan (common at non-US tech companies with US operations), or
• Have a foreign bank account with more than $10,000 at any point during the year,

…you may have FBAR (FinCEN Form 114) and/or FATCA (Form 8938) filing obligations. Penalties for willful FBAR non-disclosure start at $10,000 per year. This is an area where the downside of getting it wrong far exceeds the cost of getting professional help.

When to get an advisor

If any of the following are true, you should talk to a specialist before your next tax filing deadline — not after:

• You're in your first year of H-1B status and had RSUs vest in both OPT and H-1B periods
• You have grants with a vesting period that spans your transition from NRA to RA status
• You're planning to leave the US in the next 12 months and have unvested RSUs or unexercised ISOs
• You hold a long-term green card and are considering abandoning it
• Your home country has no income tax treaty with the US and you have significant unvested equity
• Your company has foreign operations and your equity was granted through a non-US plan structure