E2 Visa Holder Taxes and Its Process

Do E2 Visa Holders Pay Taxes

The E2 visa is a popular option for E2-qualified investors and entrepreneurs who want to direct and manage a business in the United States. While it provides numerous business opportunities, tax filing is one of the concerns of foreign investors and entrepreneurs like you, with questions such as “Do E2 visa holders pay taxes,” “Do E2 visa holders pay social security tax” and whether E2 visa has tax exemption come to mind. Understanding the tax process as an E2 visa holder is necessary to remain compliant with US tax laws and regulations while maintaining the status of an E2 visa holder.

However, the specific E2 visa taxes will depend on various factors, including whether you, as an E2 visa holder, will be classified as a non-resident or a resident for US tax purposes. This determination will then influence the specific E2 visa tax filing. The primary difference is that when you are considered a resident for US tax purposes, you will be taxed on your worldwide income, which is income generated from inside and outside the United States. In contrast, if you are considered a non-resident for US tax purposes, you will only be taxed based on your US-sourced income.

Before examining the specific requirements of an E2 visa tax return and E2 visa tax filing requirements, you are advised to consider the general requirements that underlie an E2 visa application. These requirements are crucial in determining the relevant steps you should take before preparing an application for an E2 visa, let alone consider the question of “Do E2 visa holders pay taxes?” Once these basic eligibility requirements have been established, you can continue to study and prepare for the E2 visa tax filing requirements.

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The E2 Visa and Its Requirements

If you are a citizen of a country that has a treaty of commerce with the United States, you can apply for an E2 visa to invest, manage, or even buy an existing business in the country. However, before granting the E2 visa, you must undergo stringent E2 visa requirements to qualify. The following are the basic requirements when applying for an E2 visa:

Nationality: 

You must be a citizen of a country with a commerce and navigation treaty with the United States.

Investment: 

You must make a substantial investment in a US-based business. There’s no set minimum investment amount, but it must be enough to fund the business’s successful operation. The investment must also be “at risk,” meaning that you must commit the investment amount with a potential loss outcome.

Control and Ownership: 

As the owner, you must own at least 50% of the business or have a key role in its operations, such as directing or managing the entire company.

Active Business: 

The business must be a real, active, and operational enterprise that produces goods/services or a commodity in the market. Passive investments like owning a stock or a single rental property cannot be considered active business under E2 visa requirements.

Intent to Depart: 

You must also intend to leave the United States when your E2 status ends. Since the E2 visa is a non-immigrant visa, you can apply for a permanent residency or green card through other visa opportunities, such as employment-based petitions or family-sponsored petitions.

Job Creation: 

While this is not a strict requirement, the business should ideally create jobs for US workers and contribute to the US economy.

Do E2 Visa Holders Pay Taxes?

Many investors and entrepreneurs dream of starting a business in the United States. Starting a business comes with  tax obligations, which leads to the logical question of “do E2 visa holders pay taxes?” 

Yes, as E2 visa holders, you are bound to pay taxes, which is why you need to understand the E2 visa tax filing process and whether E2 visa holders pay social security taxes. An E2 visa holder like you will start paying US taxes when they meet the “substantial presence test” or become a US tax resident.

Residency Status and Taxation

Based on the substantial presence test (a criterion used to determine the tax residency status of an individual), a person may be classified as either a resident alien or non-resident alien for tax purposes. A resident alien is a non-US citizen who is taxed as a US permanent resident or citizen. On the other hand, a non-resident alien under the tax code is an individual who is not taxed as a permanent resident. 

Resident aliens are taxed on their worldwide income, which includes income earned from international sources. In contrast, non-resident aliens only have to pay US taxes on revenue generated inside the United States.

Many believe that because the E2 visa is a non-immigrant visa, its holder is not a permanent resident and is automatically treated as a non-resident alien for tax purposes. However, it’s not quite that simple. The substantial presence test will determine whether an E2 visa holder is a resident alien for US tax purposes.

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How does an E2 Visa Holder Become a US Tax Resident?

For you to be eligible for E2 visa tax filing, you must undergo the substantial presence test to determine whether you are a resident or a non-resident alien.

Substantial Presence Test

The substantial presence test is a method used by the Internal Revenue Service (IRS) to determine whether a foreign individual qualifies as a resident alien for US tax purposes. It evaluates the number of days an individual has spent in the United States during a 3-year period, including the present year, factoring in a weighted calculation for the two preceding years. To meet this test, you must be physically present in the United States for at least 31 days during the current calendar year and 183 days during the 3-year period, including the current year and the two preceding years before the current calendar year. To determine the number of days, the IRS adds the days of presence based on the following method:

• All days you were present in the current year
• 1/3 of the days you were present last year 
• 1/6 of the days you were present the year before last

For illustrative purposes, if the current calendar year is 2025:

•  All the days that you were present in the United States in 2025;
• ⅓ of the days that you were present in the United States in 2025; and
• ⅙ of the days that you were present in the United States in 2023.

Example scenario: You were in the United States for 80 days in 2025, 30 days in 2024, and 130 days in 2023, the calculation will be as follows:

• 2025 = 80 days
• 2024 = 30 days divided by 3 = 10 days
• 2023 = 120 days divided by 6 = 20 days

The total number of days is 110. This means that you are determined to be a non-resident for US tax purposes and should NOT be subjected to income taxation of your worldwide income. You will only need to pay tax based on your US-sourced income. Although you are not paying taxes based on a worldwide income, you would still satisfy the E2 visa tax filing requirements. To stay compliant with the E2 visa tax filing regulations, watch our video further explaining how your tax residency status affects your obligations and provide tips to stay compliant with the IRS.

How to Track the Days of Presence in the United States

You are treated as present in the United States on any day that you are physically present in the country. However, there are some exceptions you need to keep in mind when counting the days of presence in the country.

According to the IRS, the following days do not count as days of presence in the United States. for the substantial presence test:

• Days you commute to work in the United States from a residence in Canada or Mexico if you regularly commute from the stated countries.
• Days when you are in the country for less than 24 hours and when you are in transit between two places outside the United States.
• Days you are in the United States as a crew member of a foreign vessel.
• Days when you are unable to leave the United States because of a medical condition that developed while you are in the country.
• Days during which you are an exempt individual. Exempt individuals are those who are in the US in the following statuses:
  • A or G status, except A-3 and G-5
  • Teachers in J or Q status, who substantially comply with the requirements of their visa
  • Students in F, J, M or Q status, who substantially comply with the requirements of their visa  
  • Professional athletes in the US to temporarily compete in a charitable sports event.

There is another exception to the substantial presence test, namely the closer connection to exception. If you can establish, or the IRS establishes, that you have a closer connection to a foreign country than the United States, then you can be treated as a non-resident alien for tax purposes even if you satisfy the substantial presence test. Generally, this requires proving that you have maintained more significant ties and contacts with the foreign country than with the United States. 

If none of these exemptions and exceptions apply and your total days of presence for the three years add up to 183 days or more, and you meet the 31-day minimum requirement for the current year, you are considered a resident alien for tax purposes.

Do E2 Visa Holders Pay Social Security Taxes?

Generally, you have an obligation to pay Social Security and Medicare taxes under the Federal Insurance Contributions Act (FICA) once you start working in the United States, have been treated as a resident alien for tax purposes, and satisfy the substantial presence test. These taxes fund the US Social Security and Medicare programs, providing benefits like disability insurance, retirement income, and healthcare for eligible individuals. 

However, the E2 visa tax obligations depend on several factors: whether the applicant is self-employed or employed by others, their residency status, and whether their home country has a totalization agreement with the United States government allowing them to continue contributing to their home country’s Social Security system instead. E2 visa holders who are non-resident aliens for tax purposes, i.e. those who do not meet the substantial presence test, may also be exempt in certain cases. 

FICA taxes, which combine Social Security and Medicare, total 15.3%. Generally, the employer pays half of this amount and the employee pays half. The current FICA tax rates for employees are:

• Social Security: 6.2% of wages up to a certain income cap ($176,100 as of 2025).
• Medicare: 1.45% of all wages (no cap).

The employer also contributes an equal amount of FICA taxes on behalf of the employee, meaning the total Social Security tax rate is 12.4% (6.2% from the employee and 6.2% from the employer). The total Medicare tax rate is 2.9% (1.45% from both the employee and employer), for a total of 15.3%.

Additionally, in some cases, there is an additional Medicare Tax of 0.9% which applies to individuals whose wages exceed certain thresholds: $200,000 for single filers, $250,000 for married couples filing jointly, and $125,000 for married individuals filing separately. This tax is only paid by employees, and employers do not contribute to it.

For those wondering whether E2 visa holders pay social security taxes, it is also important to consider that primary E2 visa investor applicants are considered self-employed under US tax rules because they own the company for which they work. In these cases, the E2 visa holder has to pay the entire 15.3% FICA tax because they are both the employer and employee. There are ways to minimize this tax liability by apportioning part of the E2 visa holder’s income as wages and another part as distributions. This strategy generally requires the E2 enterprise company to elect to be taxed as an S Corporation and then pay a reasonable salary to the E2 business owner – on which FICA taxes are withheld. If properly executed, this will allow the E2 owner to not pay FICA taxes on distributions paid to the E2 visa business owner. 

It’s important to plan for these obligations early, as they’ll impact your overall tax burden and financial planning. Depending on your visa status and business structure, your tax responsibilities may vary. Taking a proactive approach will help you avoid surprises and keep your focus on growing your business.

Exemptions Under Totalization Agreements

The United States has a totalization agreement with several countries to avoid double taxation on social security. These agreements determine which country’s social security system the E2 visa investor must contribute if they work in both countries during their lifetime.

For example, you come from a country with a totalization agreement with the United States. You may not be required to contribute to the US Social Security system while continuing to contribute to your home country’s system. This can apply if you are employed or self-employed in the United States.

These agreements ensure that you don’t pay into the US and your home country’s social security system. Instead, you will pay into one system and are typically exempt from paying into the other. The specific conditions and exemptions depend on the country from where you are from and require obtaining a Certificate of Coverage and submitting it to the IRS. Careful planning is necessary when you plan to execute an exemption under a totalization agreement.

Does E2 Visa have Tax Exemption?

While the E2 visa allows you to live and work in the United States, it does not inherently grant any tax exemptions. Your tax obligations as an E2 visa holder are determined by your residency status under US tax laws and the existence of any international tax treaties between the United States and your home country. Understanding these factors is essential for compliance and minimizing tax liabilities. Your tax residency status plays a primary role in determining the scope of your tax obligations, including the corresponding E2 visa filing requirements following your US tax residency status.

If you are considering an E2 visa and have significant foreign income, it is critical that you engage in pre-immigration tax planning to ensure that you don’t subject the entirety of your world wide income to US income taxation. One of the great benefits of the E2 visa is that it allows its holder to work in the United States while not automatically subjecting their world wide income to US taxation. Although this is not a tax exemption, it is a tax advantage offered by the E2 visa. 

While the E2 visa does not directly offer tax exemptions, you can definitely reduce your tax liability through strategic tax planning, careful consideration of tax treaties, and understanding the differences between non-resident and resident tax rules.

What are the E2 Visa Tax Filing Requirements and its Process?

The E2 visa tax filing requirements are similar to those for other non-US citizens working in the United States, but there are some unique aspects due to the nature of the E2 visa. Your tax filing obligations will be determined based on your residency status. Here are the E2 visa tax requirements and the filing process:

Filing of Tax Forms and Income Reporting

E-2 company may need to file tax forms separately from the E2 visa-holding owner. Corporations file Form 1120, while partnerships file Form 1065. 

For the E2 visa holder, the forms that need to be filed depend on whether you are classified as a resident or non-resident alien. 

For Resident Aliens: Form 1040 (US Individual Income Tax Return): This is the standard form for filing income taxes in the United States. If you are a resident alien, you must file Form 1040 and report your worldwide income, which includes income from your business, investments, and foreign sources of revenue.

Additional forms may include: 

• Schedule C (Profit or Loss from Business): If your E2 business is taxed as a sole proprietorship.
• Schedule A (Itemized Deductions): If you are claiming deductions; and
• Schedule D (Capital Gains and Losses): If applicable, for reporting investment income or gains.

For Non-Resident Aliens: You will only report US-sourced income, employment or business activities on Form 1040NR (US Non-resident Alien Income Tax Return, such as income from your US.-based business, wages from US employers, or investment income from US sources.

Deductions and Credits

E2 visa holders’ tax deductions and credit eligibility still depend on their tax residency status. For E2 visa holders considered non-resident aliens, deductions are generally limited to expenses directly connected to US trade or business income, such as operating costs, salaries, and office expenses. Access to tax credits for non-resident aliens is also restricted.

Meanwhile, E2 visa holders who passed as resident aliens are eligible for the standard deduction or itemized deductions, which may include mortgage interest, state and local taxes, and charitable contributions. Resident alien E2 visa holders may also qualify for various tax credits, such as the Child Tax Credit, Education Credits, and the Earned Income Tax Credit, provided they meet specific requirements.

Given the complexity of tax laws, it is advisable to consult with a tax professional experienced in international taxation to ensure compliance and minimize your tax liability.

Foreign Account Reporting Obligations

E2 visa holders who qualify as US tax residents must adhere to foreign account reporting obligations under US tax laws. If the value of your foreign financial accounts, including bank accounts, exceeds $10,000 at any point during the calendar year, you must file a FinCEN Form 114 FBAR or Foreign Bank Account Report. This form is filed annually through the Financial Crimes Enforcement Network (FinCEN) and is separate from the federal income tax return. While it is different from other federal income tax returns, the FBAR is also due on April 15 of each year, with a current automatic extension until October without the need to file an extension form, such as Form 4868 (Application for Automatic Extension of Time to File US Individual Income Tax Return) or Form 7004 (Application for Automatic Extension of Time to File Certain Business Income Tax, Information, and Other Returns).

Additionally, E2 visa holders may need to report certain foreign assets on Form 8938 (Statement of Specified Foreign Financial Assets), which is filed with their income tax return if the total value of these assets exceeds specific thresholds, which depends on their tax filing status. Form 8938 is similar (but not identical) to the FBAR. Since the said form is filed with the individual’s E2 visa tax return, they will have the same due date. Another compliance form that may impact your E2 visa taxes is Form 5472 (Information Return of a 25% Foreign-Owned US Corporation or a Foreign Corporation Engaged in a US Trade or Business), which is used to report transactions between a US company and foreign-related parties, including foreign owners. The exact reporting requirements will depend on your particular situation. 

These requirements are part of the US government’s efforts to prevent tax evasion and ensure transparency regarding foreign financial holdings. Failure to comply with these reporting obligations can result in significant penalties, including monetary fines and, in severe cases, criminal charges. Hence, E2 visa holders are generally advised to seek professional guidance to ensure proper tax planning and compliance.

Important Deadlines and Considerations

Tax Deadlines

Meeting tax deadlines is a critical obligation for all taxpayers in the United States, including non-resident and resident aliens. For individuals, E2 visa tax filing of federal income taxes for income earned during the prior calendar year is typically due on April 15 of the following year. This deadline is consistent for most taxpayers unless it falls on a weekend or holiday, extending to the next business day. While taxpayers can request a filing extension, usually until October 15, it’s important to note that this extension applies only to the filing of the return, not to the payment of taxes owed. Any unpaid taxes after April 15 may incur interest and penalties, which can add significantly to the total amount due. Taxpayers are encouraged to estimate and pay any expected liability by the original due date to avoid any issues. 

Corporations and partnerships must file a tax return by March 15 but may ask to extend this deadline. 

For individuals like E2 visa holders with complex financial situations or who require additional time to gather necessary documents, requesting an extension for tax filing can provide valuable flexibility. However, delays in filing or payment should be avoided to mitigate unnecessary complications and increased financial burden. Maintaining accurate records and consulting with a tax professional to ensure compliance and minimize the risk of errors or missed deadlines is highly advisable.

Changes in Visa Status or Departure

If an E2 visa holder seeks to leave the United States or transitions to a different immigration status, it is best to understand the tax implications of these changes. Departing the United States permanently or changing status out of a visa category that grants certain tax benefits may trigger unique requirements, such as filing a final tax return or complying with exit tax provisions. Non-resident aliens, for example, may need to file Form 1040NR to report income earned while in the United States, while resident aliens may need to report their worldwide income until their departure date.

Additionally, specific immigration status changes, such as moving from a non-immigrant status to permanent residence, can change your tax residency status, impacting the type of income and financial accounts you must report and the deductions or credits available. It is best to consult with a qualified tax advisor before changing your immigration status or tax residency status to guarantee compliance with US tax laws and to avoid potential fees and penalties. Being proactive in understanding these obligations can prevent last-minute challenges and simplify your tax filing process.

Tax Treaty Benefits

Tax treaties between the United States and other countries can help non-resident aliens save on taxes. These agreements prevent double taxation and may lower taxes on income like dividends, interest, and royalties. In some cases, they even allow certain types of income to be tax-free or taxed at a lower rate, depending on the treaty between the US and the individual’s home country. E2 visa holders can benefit from tax treaties, but they need to review the treaty in detail. Since each treaty is different, it’s essential to understand the exact benefits available under the said treaty and whether it applies to citizens of the E2 visa holder’s country. A tax advisor who understands international tax rules can help understand the benefits and advise on the best strategies to stay compliant with US tax laws.

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Conclusion

The E2 visa is an excellent opportunity for E2 investors to start a business in the United States. However, this investment opportunity gives rise to certain tax obligations. Understanding these obligations and ensuring you stay compliant is essential for running your E2 business in the United States. Seeking professional assistance and utilizing available resources can help maintain compliance with US tax laws and E2 visa regulations, leaving you free to focus on your business goals. Proper tax planning and staying informed about new rules are the key in managing E2 visa taxes while taking full advantage of the opportunities the E2 visa offers.

Our Legal Services

Navigating the E2 visa tax process can be complex. I always advise that prospective E2 visa applicants work with an E2 visa tax advisor to alleviate the stress of this process. At Pandev Law, we routinely help, help E2 investors understand their US tax obligations and create a tax plan that keeps E2 visa holders compliant and minimizes their tax liability. With our in-depth knowledge and personalized approach, you’ll have the confidence to embark on your E2 visa journey.
If you would like to schedule a consultation with me, Adrian Pandev, an experienced E2 visa tax and immigration lawyer, follow the link and click on “Schedule a Consultation.” You can also reach us via email at [email protected], or call us at (646) 354-3780.

During your consultation, I will review your goals and provide an honest assessment as well as customized plan for your case, and guidance regarding your next steps.

Disclaimer: This blog article is provided by Pandev Law, LLC for general educational and informational purposes only. Although this article discusses general legal issues, it does not constitute legal advice nor does it establish an attorney-client relationship. No reader should act or refrain from acting on the basis of any information presented in this article, or elsewhere on this website, without seeking the advice of appropriate legal counsel, or other professional counsel, licensed in the relevant jurisdiction. Pandev Law, LLC expressly disclaims any and all liability with respect to any actions taken, or not taken, based on any content of this article or website. This blog article may constitute attorney advertising. Prior results do not guarantee a similar outcome.