Complete Guide to O1 Visa Taxes

Updated on April 9, 2024

At a Glance

  • The O1 visa is granted to non-residents with extraordinary abilities in arts, science, education, business, or entertainment.
  • O1 visa holders staying in the US for over 6 months may need to pay taxes and fulfill reporting requirements like FBAR and Form 8938.
  • Failing to comply can result in penalties.
  • Other forms like 3520, 5471, 8621, and 8865 have specific thresholds and penalties.

All men should be considered equal – but sometimes, there are individuals whose intellect is placed above the others. They are “brain superheroes,” to put it plainly – and because their talents are not put to good use in the place that they were born in, they decided that the best course would be to follow their dreams in the United States.

The problem is that you cannot enter the United States without a visa. And even if you are on a visa, it does not mean that you will be exempt from U.S. taxes. For more details regarding the O1 visa, you might want to read this guide.

What Is an O1 Visa

O1 visas are given to non-residents that are working in the U.S., and that have demonstrated that they have extraordinary abilities in their domain. It doesn’t matter if it is arts, science, education, business, television, or motion picture industries as long as they have proven that they have risen on top of their domain.

The O visa is usually seen as the non-resident EB equivalent – also known as the “Extraordinary Ability Green Card.” This grants the holders permanent residency – but for that to happen, they will have to demonstrate that they are at the top of their field.

These visas may be permanent or can be given in the long term. As long as you are able to demonstrate your ability and skills, you should be able to remain in the U.S.

To the O1 visa, you may add the O2 visa, which is for those that are accompanying the holder of the O1.

O1 Visa and U.S. Taxes

A bit of a problem that occurs once O1 or O2 visa holders have been staying in the United States for more than 6 months is whether or not they should be paying taxes in the same way that residents do. Should they be treated as non-residents, or should they be seen as U.S. residents that are subjected to taxes?

If it is decided that they have to pay taxes, then under the Foreign Account Tax Compliance Act (FATCA), there are several reporting and filing responsibilities to handle – the main one being to provide a report on their foreign account or to give a yearly FBAR. Also, those who have entered the U.S. on an O1 visa but are out of tax compliance may enter certain programs where they should be able to get that compliant.

Substantial Presence Test

If you are a non-U.S. citizen or a non-U.S. green card holder, you only have to pay taxes on the “U.S. Effectively Connected Income” – which is money earned while you are working in the U.S. However, if you meet the qualifications for the Substantial Presence Test, then the IRS will subject you to taxes, no matter where your income is coming from.

To put it simply, the IRS Substantial Presence Test means that you have been present in the United States for more than 30 days of the current year and more than 183 days of the past three years.

Additional O1 Visa Reporting Requirements

Once it has been decided that you will be subjected to taxes, there are several O1 benefits that you may get, but also requirements that you will have to keep in mind.

FBAR (FinCEN 114)

The FBAR receives the most press among IRS International reporting forms, which is why we are starting off with this form. It is used to report to Financial Accounts and the Foreign Bank on a yearly basis.

The threshold of this form is relatively low, namely $10,000. As a result, if the total annual aggregate in your foreign accounts goes over $10,000, then you will have to file this form – no matter if that money is just in one account or spread over multiple ones.

FBAR Penalties

One thing that you have to be aware of when filing the FBAR is the penalty that you might receive if you fail to do so. If your foreign financial account value goes over $10,000 on any given year, then you will be subjected to penalties that can be as high as the greater of $100,000 or 50% of your total balance.

Form 8938

Form 8938 is a FATCA byproduct that you need to file for the tax returns once you meet the requirements. Different from the FBAR, which is a physical form and does not contain your tax returns, this one is sent in electronic form and is directed towards the Department of Treasury. It is also to be completed once your total income on every account exceeds $10,000.

Form 8938 Penalties

Like with the FBAR, failing to file this form will also bring some penalties. The penalty for failing to file this form on an annual basis is $10,000, and for each month when a taxpayer fails to report the returns, an additional $10,000 is charged starting with 90 days of the taxpayer receiving the notification

Form 3520

This is a relatively benign form – but in some cases, it is very important. Needless to say, the IRS can issue great penalties and fines for those that do not report it. Simply put, this form is filed when the owner of the green card receives a foreign gift – no matter if it is from a foreign person, business, or trust distribution.

Having said that, there are several threshold requirements that would have to be considered as well – and not all gifts should be reported. Granted, if one receives a trust distribution, then yes, a report must be given. However, if they receive a gift whose value is under $10,000, then they will not have to make the report. Bear in mind that this sum applies to the entire tax year.

Form 3520 Penalties

If your gifts exceed $10,000 – be it in one transaction or a series in the same tax year – the penalty can be the greater than $10,000 or 35% of the gross amount that should be reported. Return reporting gifts are an exception from this, as the penalty is 5% of the value of the gift every month, going to a maximum of 25%.

Form 3520-A

This one is slightly different from form 3520, as it should be filed by the U.S. citizen in the event that they own a foreign trust. This form will have to be filed, regardless of the amount that is present in that particular trust.

Form 3520-A Penalties

The issue with this form is that if the trust holder does not report, then he or she may be subjected to penalties and fines. These may be fairly substantial, depending on the circumstances and facts of the reporting. The fine may go as high as the greater of $10,000 or 5% of the value of the trust fund.

Form 5471

This form is generally filed when the person holds ownership over stocks or sections in a foreign corporation. The threshold varies significantly – but most of the time, the person has to file when they own 10% or more of the entire foreign corporation.

Form 5471 Penalties

A person that fails to file for information return on form 5471 will be subjected to a penalty that will grow each month, provided they pay the fine on time. Simply put, the person will be fined $10,000, with the addition of $10,000 for each month in which the fine was ignored. The addition will apply 90 days after the individual has been informed of his or her delinquency, reaching a maximum of $50,000 until extreme measures are taken.

Form 5472

While form 5471 is used by U.S. people who have ownership in foreign countries, form 5472 is filed by those who are not from the U.S. originally. They are also filed when the person in cause holds 25% or more of the foreign corporation.

Form 5472 Penalties

Like with form 5471, the penalty for not filing this form is $10,000, with the addition of extra $10,000 each month in the event that the notification for the delinquency is ignored.

Form 8621

This IRS form is required to be completed by those who have an interest in passive foreign investments. There’s no minimum ownership requirement – and even if you are a partial owner, you are still required to pay.

Form 8621 Penalties

There is no specific penalty for not filing form 8621, as the tax return is seen as “open” until you file the form. In other words, the countdown for the audit of your tax returns won’t even begin if you do not file form 8641.

Form 8865

Similar to form 5471, this one is used to report interest in a foreign partnership. It is on a smaller level than with a corporation – which will require that you have a fairly significant percentage

Form 8865

The penalty for failing to file this form will include $10,000 for each failure to file, along with $10,000 extra for each month to follow when the notice for the penalty has been ignored.

Other International Tax General Penalties

There are other additional penalties that you have to be aware of, among which are the following:

Fraud Penalties Imposed Under IRC §§ 6651(f) or 663

If the failure to pay the tax is due to fraud, then the penalty values around 75% of the unpaid tax

A Penalty for Failing to File a Tax Return Imposed Under IRC § 6651(a)(1)

If a taxpayer fails to file their income tax returns, they will receive a 5% penalty of the balance due. The percentage grows 5% each month until they file – but it shall not exceed 25%.

A Penalty for Failing to Pay the Amount of Tax Shown on the Return Under IRC § 6651(a)(2)

If the taxpayer does not pay the money on the return, they may be subjected to a penalty of 0.5% of the tax value. The percentage grows 0.5% each month until they pay in full – but it shall not exceed 25%.

Depending on the component on which the accuracy-related penalty is applied, the taxpayer might receive a 20-40% penalty.

Providing false returns or willingly failing to file tax forms are considered violations against the state and will be subjected to criminal charges.

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

A person that willingly files false returns is subjected to $250,000 fines and prison of up to 3 years. A person that only fails to file their tax returns will receive $100,000 and up to 1 year in prison.

Stilt Loans to Pay O1 Visa Tax Penalties

If you have to pay your tax penalties, the easiest method would be to take out a visa loan. The Stilt process is relatively simple.

1. Submit an Application

Once you have submitted the application, we will review it over the next 24 hour. If more information is required, we will contact you.

2. Receive an Offer

Once your documents have been reviewed, we will send a promissory note that you will have to sign. Once the note has been signed, it will take about 2-3 days until the money reaches your account.

3. Start Making Payments

Once the loan is given, all that is left for you to do is to schedule your payments. You may also set the autopay feature so that you never forget to make a payment. This will also reduce the risk of penalties due to late payment.

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Wrap Up

Taxes may be troublesome, but they have to be paid – and the O1 visa will have its own taxes that you will have to be aware of. Furthermore, if you have been subjected to penalties, you may benefit from a loan to help you get straight with your taxes.

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Frank Gogol

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.

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