L-1 Visa Tax Filing Guide 2025: Split Payroll, Tax Equalization, and Indian Provident Fund

Unlike F-1 students, L-1 holders are not exempt individuals. Days count from Day 1.

First-Year Choice available if eligible. Dual-status arrival year may apply in the first year of U.S. residency if SPT met mid-year.

Report all worldwide compensation — not just US W-2.

Report on Form 1040 Line 1 or Schedule 1. Convert INR→USD at IRS rates. Claim FTC (Form 1116) for Indian TDS.

1. Employer calculates hypothetical tax (as if you stayed in India)
2. You pay hypothetical amount
3. Employer pays actual US tax
4. Employer-paid tax = additional taxable income → gross-up cycle

You're still responsible for filing your own return.

EPF:

Foreign Trust Reporting:

· EPF/PPF may require additional US reporting depending on their classification and the taxpayer's circumstances.

· EPF+PPF missed 2 years = potentially significant penalties if Forms 3520/3520-A were required and not filed.

L-1 holders may have foreign financial accounts that trigger FBAR and FATCA reporting requirements.

FBAR accounts: Indian salary account, NRE/NRO savings, FDs, EPF, PPF, NPS, mutual fund folios, demat, gratuity, LIC.

FBAR filing is generally required if the aggregate value of foreign financial accounts exceeds $10,000 at any time during the year.

FATCA: Single $50K/$75K; MFJ $100K/$150K.

Article 16: US-source salary is US-taxable. Saving clause preserves US right to tax residents.

DTAA helps via FTC: NRO interest, Indian capital gains, dividends, rental income.

Short-term exception (Art 16(2)): <183 days + paid by non-US employer + not borne by US PE. Most L-1s don't qualify.

MFJ almost always better: wider brackets, $32,200 standard deduction (2026).

Documents:

• W-2 (includes equalization)
• Indian salary slips / Form 16
• EPF passbook (supporting document)
• PPF statement (supporting document)
• India bank statements (for FBAR/FATCA reporting if applicable)
• Mutual fund CAS
• Tax equalization settlement
• 1099-B (stock sales)
• Form 16A / TDS certificates
• Prior year return
• Passport with stamps
• Spouse ITIN/SSN

Deadlines:

Must I report Indian salary?

Yes — worldwide income if you are a U.S. tax resident. Self-report Indian-paid amounts. Claim FTC for eligible foreign taxes.

Is EPF taxable in US?

Generally, depends on classification and facts. Employer contributions and interest may be taxable depending on U.S. tax treatment. Forms 3520/3520-A may be required in certain cases if classified as a foreign trust (penalties may apply if required forms are not filed).

FBAR required?

Required if aggregate foreign financial accounts exceed $10,000 at any time during the year.

Standard deduction?

Available for resident aliens filing as Single or MFJ (amount varies by tax year per IRS rules). Not generally available in dual-status year unless First-Year Election applies.

DTAA exempt salary?

No. Saving clause preserves US right to tax residents. Treaty relief may be available mainly through Foreign Tax Credit (FTC), not automatic exemption.

L-2 spouse can work?

Yes with EAD. File MFJ for best outcome.

Short-term exemption?

Article 16(2): <183 days, non-US employer, no US PE. Most don't qualify.