H-1B holders see a glimmer of hope in UK's social security payouts deal

The UK's decision to exempt Indian professionals from paying social security contributions may positively influence the US, where H-1B work visa holders pay up to 15.3% of their income as social security tax without being eligible to avail any benefits.

On Tuesday, as part of the UK-India free trade agreement, the UK has exempted Indian professionals from paying National Insurance contributions for up to three years.

Meanwhile, federal social security taxes in the US have been a major pain point for H-1B professionals who cannot avail pension benefits before completing 10 years.


"The H-1B visa lets you work in the US for six years, so unless you are on a Green Card track by the time you are in the sixth year, you have to leave the country, and all the money you contributed during those six years has gone down the drain," Poorvi Chothani, Managing Partner at immigration law firm, LawQuest, said.

As of today, the social security tax rate is 6.2% for the employer and 6.2% for the employee. The Medicare rate is 1.45% for the employer and 1.45% for the employee. In total, tax contribution to social benefit schemes is upto 15.3% of annual income.

As per India’s software industry body Nasscom, Indian workers have lost $1 billion of their income to social security tax. In a renewed push, the Indian government has shared data with the US as part of dialogue on trade deal and raised the need to address this long-standing need.

“The US Government has maintained that the Indian PF scheme is not similar to the US social security scheme, due to which they are unable to enter into an SSA,” explained Alok Agrawal, Partner, Deloitte India.

“…if the Indian Government continues with the ongoing dialogue on tariffs and is able to enter into a broader FTA with the US, then we may also have a similar SSA with the US in the future,” he said.

The US has ‘Totalization Agreements’ with over 30 countries to prevent double taxation of income with respect to social security taxes for foreign workers. But, not with India.

Meanwhile, India has SSAs with 19 countries and mobility measures with several others to prevent such double taxation.

As for the UK, this move is expected to benefit around 60,000 employees in the IT sector, saving them approximately 20% of their salary. Indian companies will also benefit from a three-year exemption from the UK's Jobs Tax, leading to benefits exceeding Rs 4,000 crore, some estimates suggest.

“Picking the minimum salary threshold under the most popular visa category (Tier-2 ICT) the potential loss of NI contributions in estimated at £413 million per annum,” said Sonu Iyer, Partner and National Leader, People Advisory Services-Tax, EY India.

This may seem huge, but Indian companies operating in the UK have a combined turnover of £41 billion. “In this context, the possible cost of a social security agreement is modest, which could further incentivise investment and job creation,” she explained.

“The signing of India-UK Double Contribution Convention for social security exemption may positively influence the India-US talks for a limited SSA such as the one with the UK may be a good option to have on the table,” Iyer said.

However, given the current tightening of immigration rules, some experts believe, H1B workers in the US are unlikely to see any policy benefits in the near future.

“This is a huge loss for the Indian workers in the U.S., but the US government is unlikely to address this in the near future. So we are not going to see a benefit for H-1B workers like the one introduced by the Indo-UK agreement,” LawQuest’s Chothani said.