I’m a firm believer that information is the key to financial freedom. On the Stilt Blog, I write about the complex topics — like finance, immigration, and technology — to help immigrants make the most of their lives in the U.S. Our content and brand have been featured in Forbes, TechCrunch, VentureBeat, and more.See all posts Frank Gogol
L1 Visa Taxes
At a Glance
- The L1 visa is a non-immigrant visa for intra-company transfers to the US, with types for executives/managers (L1-A) and specialized employees (L1-B).
- L2 visas are for accompanying family members of L1 visa holders.
- Tax obligations for L1 visa holders depend on the substantial presence test, determining residency for tax purposes.
- Non-compliance with tax reporting forms may result in penalties, and general tax penalties include fraud, failure to file, failure to pay, and accuracy-related penalties.
Taxes are everywhere – regardless of where you are going or where you are working, you will be subjected to these taxes and will have to pay your role as a fine citizen. However, with so many visas going around, it’s fairly hard to determine where you have to go and what you have to pay.
Needless to say, not paying your taxes might bring you in a fair amount of trouble – which is why it’s mandatory that you remain informed. By reading this article, you will find out what the L1 visa is and what forms you will have to file in order to be a good, law-obeying taxpayer.
What Is an L1 Visa?
The L1 visa is a document needed to enter the United States for work purposes. This visa is a non-immigrant one, and it is only valid on the short term, depending on the country that you are coming from (3 months for Iran nationals and five years for those from Japan, India, and Germany). It is also based on a reciprocity schedule.
To put it simply, the L1 visa is a US visa that allows for an intra-company transfer. It permits a U.S. company to transfer one of its key employees from their local offices into one that has been situated in the United States.
There are two types of L1 visas. First, we have the L1-A visa, which is for executives and managers – and which may be applied for either a transfer or simply coming to the U.S. to set up an office. The second type, the L1-B visa, is given to the employees who are specialized and who have gained essential knowledge and skill set.
There is also the L2 visa, given to those accompanying the L1 visa holder. In all cases, the employer should be the one submitting for the visa.
L1 Visa and U.S. Taxes
When it comes to immigrants, particularly the ones working on an L1 visa, there will always be the matter of taxpaying – and whether or not you will have to pay if you are only there on a work visa. Well, this will depend on how much time you spend there.
Needless to say, if you stay there for long enough, you will be subjected to taxes – and even as a non-immigrant, you will have to pay your dues.
Substantial Presence Test
If you are a non-US citizen, you generally only need to pay taxes on the income that you earn in the United States. However, if you become a resident that qualifies under the Substantial Presence Test, then you will be taxed by the IRS worldwide.
The test will simply calculate how many days you stayed – and based on that, whether or not you have to pay taxes. For example, if you are only there for a couple of days on delegation, then there will be no taxes for you to pay. However, if you were there for at least 30 days in the present year and at least 180 in the past 3 years, then you will be subjected to taxes from wherever your income arrives.
Additional L1 Visa Reporting Requirements
There are certain forms that you will have to be aware of as a taxpayer – as well as certain penalties that you must know of in the event that you do not file the forms. No matter if you are unaware or are knowingly not filing, your actions might bring consequences.
FBAR (FinCEN 114)
The FBAR is likely the most common form used to file taxes, and it goes to the Report of Foreign Bank and Financial Accounts every year. This form will require filing in the event that the total funds in your foreign accounts exceed $10,000 on any day of the financial year. No matter if the money is in one account or sectioned in several different accounts, you will still be subjected to tax filing.
Not filing your FBAR when you are supposed to will attract with itself a fair number of penalties. For example, if on any day of the financial year, the value of your foreign financial accounts goes over $10,000 – and you have not filed for taxes – then you will be given a penalty. This can either be the greater than $100,000, but it may also be 50% of the entire value of your funds.
This form requires filing when you have to report your yearly tax returns – as long as you meet the requirements for filing. However, different from the FBAR, this one is to be filed electronically and sent to the Department of Treasury. Here, you will have to provide information about any foreign accounts that you may have, as well as any potential foreign assets.
Form 8938 Penalties
Once more, if you fail to file your taxes, regardless of the reason, you will be subjected to tax penalties. For failing to file form 8938, and the information on your assets and accounts, you will have to pay a $10,000 fine, along with a $10,000 addition for every following month in which you do not pay.
Form 3520 is a relatively simple one – but nonetheless, one that can be very important in certain circumstances. Simply put, this form will be used to report gifts from foreign businesses, trust distributions, and people. Bear in mind that except for foreign trust distributions (which have to be reported at all times), only the gifts exceeding $10,000 will have to be reported.
Form 3520 Penalties
As mentioned, for any transfer of private property and gifts, taxpayers will have to file a report. If the value of the gift exceeds $10,000 and you have not filed, then you risk either the greater of $10,000 fine or 35% of the gross value of the gift.
Form 3520-A is similar, but at the same time slightly different from the simple form 3520. While the former is filed by a non-U.S. citizen receiving from abroad, this one is filed by a U.S. citizen that is the owner of a foreign trust. This is necessary in order for the annual reporting requirements towards the government to be satisfied.
Form 3520-A Penalties
Considering that owners will also have to report their interest in foreign accounts, failure to file the form will also bring several penalties. In this case, the fine for refusing to file on time or providing an incomplete return will be either the greater of $10,000 or a total of 5% of the value of the assets.
Typically, form 5471 is used when someone is the owner of a foreign corporation. How much they have to own is still debatable – but in most cases, it is accepted that if you own at least 10% of the company, then you are required to file form 5471.
Form 5471 Penalties
If a director, officer, or shareholder of a particular foreign corporation fails to file form 5741, they will be sent a notice of their delinquency and will be fined $10,000. Beginning with 90 days of the notification, an addition of $10,000 will be added to each month in which the fine is ignored.
Slightly similar yet different from form 5571 is form 5472, which is filed when a person from the United States has an interest or ownership in a foreign corporation. This form is generally filed when the person in question holds more than 25% of the ownership.
Form 5472 Penalties
The penalty is the same as with form 5471. The initial fine is $10,000 – and if the fine is ignored 90 days later, an additional $10,000 is added every month.
This form is for L1 visa holders that are shareholders of passive foreign investments or have ownership in a foreign mutual fund. In this case, no minimal ownership is required – and unless you are part of the very limited people that are exempt from it, you will have to file the form.
Form 8621 Penalties
There isn’t a specific penalty when it comes to failing to file form 8641 – and in most cases, the tax return is seen as “open” until the filing occurs.
Form 8865 is similar to form 5471 – but whereas the latter is used to report the ownership of a foreign business, this one reports a foreign partnership. Even if the assets are owned through “partnership” and are shared, they will still have to be reported.
Form 8865 Penalties
The penalties are the same as with form 5471. Initially, the owner will receive a $10,000 fine – and if the fine is ignored, within 90 days, they will receive an additional $10,000 fine every month.
Other International Tax General Penalties
In the event of any other mistakes and/or fraud cases, there are certain penalties that you may want to be aware of when it comes to L1 visa taxes.
Fraud Penalties Imposed Under IRC §§ 6651(f) or 663
When a tax has been underpaid or the owner failed to file their tax return due to fraud, the taxpayer may be subjected to a penalty that may amount to 75% of the total unpaid tax.
A Penalty for Failing to File a Tax Return Imposed Under IRC § 6651(a)(1)
As a rule, the taxpayers are also required to file their income tax returns. If they fail to do so, they risk a fine of 5% of the balance that is due – plus an extra 5% in every following month that the failure to file occurs.
A Penalty for Failing to Pay the Amount of Tax Shown on the Return Under IRC § 6651(a)(2)
Failure to pay is just as bad as the failure to file – so if a taxpayer does not pay the amount necessary, they will be given a penalty worth .5% of the tax amount deemed as a return. Moreover, if the taxpayer still refuses to pay, an additional .5% will be added to the penalty every month.
An Accuracy-Related Payment on Underpayments Imposed Under IRC § 6662
Depending on the gravity of the situation and the component on which the penalty lies, the taxpayer may have to pay anything from 20% to 40% in fines.
Possible Criminal Charges Related to Tax Matters Include Tax Evasion (IRC § 7201)
Knowingly and willingly failing to file or filing falsely will attract with itself criminal charges under 31 U.S.C. § 5322. Additional charges may be added to conspiracies to fraud or committing an offense against the U.S. or the government.
A Person Convicted of Tax Evasion Is Subject to a Prison Term of Up to Five Years and A Fine of Up to $250,000
Prison terms may also be given as a result of tax evasion. Failure to file the tax returns might lead to a $100,000 fine along with up to one year in prison while providing false returns might lead to $250,000 fines and up to 5 years in prison.
Loans to Pay L1 Visa Tax Penalties
If you are struggling with tax penalties, the quickest solution would be to take out an L1 visa loan and prevent more penalties. In this case, you might want to start working with Stilt.
1. Submit an Application
Submitting your application is a 5-minute process, and Stilt will send you an update or answer within 24 hours. If more information is required, then you will be contacted and given a short verification call.
2. Receive an Offer
Once your documents have been assessed, you will be given an offer for a loan. Once the promissory note is signed, the money will enter your account within 2-3 business days.
3. Start Making Payments
At this point, all that is left is for you to begin making your payments. In order to make this process easier for you, Stilt is giving you the option to set for auto-payments. It takes only about a minute to set it, and this way, you will not have to worry about any missed payments.
L1 visa taxes may be rather troublesome – but if you are extensive and handle them carefully, then there should not be any issues. Bear in mind that each unfiled tax return may attract penalties – so, try to be responsible with your payments.