For employees with an approved H-1B cap case, October 1 is normally when Social Security, Medicare (FICA), and FUTA tax treatment change. This guide explains that change first, then the situations, like a pending case, required travel, or a lottery-exempt employer, that can shift or delay it.
- For an employee with an approved H-1B cap case, October 1 is normally the date Social Security, Medicare (together, FICA), and FUTA tax treatment change. These taxes turn on because the employee's F-1 exemption ends once H-1B status begins.
- Confirm the date before acting: use the H-1B effective date shown on the I-94 attached to the bottom of Form I-797A. If it reads October 1, start withholding that day. If it reads later, use that later date instead.
- The process: HR checks the H-1B case status. Immigration confirms the employee's status and work authorization. Payroll confirms the employee's current tax treatment. Payroll makes the change on the documented effective date.
- A handful of situations can change or delay this date instead of following the standard October 1 pattern, covered later in this guide. If the case is still pending on October 1, do not make a payroll change based only on the calendar, and do not assume the employee remains exempt from Social Security and Medicare taxes.
- A separate, unrelated trigger: once an F-1 employee has been an exempt student for more than five calendar years, they can become a US tax resident and lose the FICA exemption independent of any H-1B filing.
What changes on October 1
For the standard case, an approved H-1B cap case with the change of status effective in the US, three things change:
- Social Security tax: starts being deducted from the employee's pay.
- Medicare tax: starts being deducted from the employee's pay. Social Security and Medicare together are FICA.
- FUTA: starts applying to the employee's wages. FUTA is paid entirely by the employer and is never deducted from the employee's pay.
The employee still owes federal income tax throughout the transition. That withholding doesn't start or stop on October 1; only its paperwork can change (see "Income tax withholding is a separate process" below).
These three taxes turn on because the employee's F-1 exemption from FICA and FUTA ends once H-1B status begins.
Many F-1 employees are temporarily exempt from Social Security and Medicare taxes. Confirm that the exemption still applies before making any change. The IRS limits this exemption to qualifying nonresident F-1 employees performing authorized work, so it is not automatic and it does not last forever. See IRS guidance.
Most H-1B employees work for an employer that had to enter the H-1B lottery. For these cases, the earliest possible start date is October 1, and the I-94 can show October 1 or any later date, but never an earlier one. A smaller group of employers, such as universities, affiliated nonprofits, and nonprofit or government research organizations, are exempt from the lottery, and their H-1B start dates can fall any time of the year. Confirm which kind of case you have before assuming October 1 matters.
Who does what
This only works as an instruction sheet if each team stays in its lane:
- HR collects the documents, creates alerts, and sends the confirmed I-94 date to payroll.
- Immigration confirms immigration status and work authorization.
- Payroll or payroll tax advisor confirms whether the employee is currently exempt from FICA and makes the payroll change.
When the H-1B approval is received, HR should review the I-94 attached to Form I-797A and send the H-1B effective date shown on the I-94 to payroll.
Alerts HR should create
The first two alerts below apply to every approved case. The rest apply only if the case does not resolve as expected by October 1, and the October 1, March 1, March 15, and March 31 alerts are specific to a lottery-subject employer, where the H-1B start date is tied to the October 1 fiscal year. For a lottery-exempt employer, apply the same document and confirmation steps using the H-1B effective date shown on the employee's I-94.
| Alert | HR action | Payroll/accounts action |
|---|---|---|
| 30 days before the expected H-1B start date | Check the case status and request the approval notice | No change yet |
| H-1B approval received | Review the I-94 attached to Form I-797A and send the H-1B effective date shown on the I-94 to payroll | Schedule the tax change |
| October 1 and the case is still pending (lottery-subject employer) | Ask immigration to confirm cap-gap work authorization. Ask payroll or the payroll tax advisor to confirm the employee's current tax treatment | Do not switch solely because it is October 1 |
| March 1 and the case is still pending | Escalate to the immigration team | No automatic change |
| March 15 and the case remains pending | Obtain a written work-authorization plan from the immigration team | No automatic payroll change |
| March 31 and the case remains pending | Confirm whether the employee must stop working on April 1 and give the employee and manager clear instructions | Do not activate H-1B tax treatment. Follow HR's instructions regarding the employee's work and pay status |
| Employee travels internationally | Obtain the newest I-94 after reentry | Use the confirmed H-1B admission date |
| December of the employee's fifth exempt calendar year | Request a tax-status review before January payroll | Update FICA only after receiving the tax determination |
| Petition denied or withdrawn | Contact the immigration team immediately | Do not start H-1B withholding |
Decision table for payroll
The first row below is the standard case described above. The remaining rows are exceptions: situations that change or delay the standard October 1 change. Once HR and immigration have confirmed the facts, here is what payroll/accounts does in each situation.
| Situation | What must be confirmed | What payroll/accounts does |
|---|---|---|
| Standard case: H-1B approved, status changes while the employee stays in the US | The H-1B effective date shown on the I-94 attached to Form I-797A | Start Social Security, Medicare, and FUTA using the H-1B effective date shown on the I-94 attached to Form I-797A |
| Exception: the case requires the employee to travel before it takes effect | The newest I-94, obtained after the employee returns in H-1B status | After the employee returns in H-1B status, use the H-1B admission date shown on that newest I-94, not the date printed on the approval notice |
| Exception: H-1B case still pending on October 1 (lottery-subject employer) | Immigration confirms whether cap-gap work authorization applies. Payroll or the payroll tax advisor confirms whether the employee's current FICA treatment is still correct | Do not change payroll only because October 1 arrived. Keep the employee's current payroll setup until HR and payroll confirm the FICA treatment |
| Exception: employee traveled internationally while the case was still pending | Which I-94 controls: the one attached to the original approval notice or a newer one issued at reentry | Wait for a confirmed date from immigration before making any change |
| Exception: the I-94 lists an H-1B effective date later than October 1 (lottery-subject employer) | The effective date on the I-94 attached to Form I-797A | Use that later I-94 date, not October 1 |
| Exception: employer is exempt from the H-1B lottery (a university, an affiliated nonprofit, or a nonprofit or government research organization) | The effective date on the I-94 attached to Form I-797A or, after travel, the H-1B admission date on the newest I-94 | Use that date; it can fall anywhere in the year and October 1 does not apply |
| Exception: petition denied, withdrawn, or no longer being pursued | The outcome, confirmed with immigration counsel | HR must immediately confirm whether the employee still has another valid form of work authorization; do not start H-1B withholding |
Exceptions and special situations
The situations below are exceptions to the standard October 1 change described above. Each one can change or delay the date payroll should use, or rule out the change entirely.
The automatic F-1 work-permit extension ("cap-gap")
Cap-gap can extend an employee's F-1 status while an eligible H-1B change-of-status case is pending. For some employees, it also extends OPT or STEM OPT work authorization. Ask the immigration team to confirm both separately.
HR should not determine cap-gap eligibility from this article. Require written confirmation from the immigration team and an updated cap-gap Form I-20 before treating anyone as authorized to work under it.
The April 1 cutoff
If the H-1B petition is still pending on April 1, the employee is no longer authorized to work under the cap-gap OPT extension. In operational terms, March 31 is the last possible workday under that extension, not April 1. Use the alert dates above (March 1, March 15, March 31, April 1) to track this rather than waiting until April 1 to check. See the DHS final rule.
Travel-required approvals
Some approvals don't change the employee's status while they stay in the US. If the case was filed this way, or USCIS approved the petition without approving an in-country status change, the employee stays on their old status until they leave the US, get an H-1B visa if needed, and reenter the country in H-1B status. Use the admission date on the new I-94 issued at reentry, not the date printed on the approval notice, and confirm the employee's OPT or STEM OPT was still valid through their last day of work before they left.
Employers exempt from the H-1B lottery
Universities, certain nonprofits connected to universities, and nonprofit or government research organizations can sponsor H-1B employees without going through the lottery. Their start dates can fall anywhere in the year, so October 1 may have nothing to do with these cases. By contrast, a lottery-subject petition's start date is October 1 or later, never earlier. Use the H-1B effective date shown on the employee's I-94.
Income tax withholding is a separate process
Federal income tax withholding continues through the transition regardless of which of the above applies. What can change is the paperwork: employees who aren't yet US tax residents follow special W-4 rules in IRS Notice 1392, while those who are fill out the form the same way a US citizen would. Moving to H-1B status doesn't automatically make someone a US tax resident on the same day. Ask payroll or the payroll tax advisor to confirm the employee's tax-residency treatment.
Income tax treaties generally do not remove Social Security or Medicare taxes. A separate Social Security agreement between the United States and another country may apply in limited cases; send that question to your payroll or tax advisor rather than deciding it yourself.
Five-calendar-year review
This is a separate trigger that has nothing to do with the October 1 change or its exceptions above. It can hit an employee who's still a student on F-1 or OPT and hasn't filed an H-1B petition at all.
For their first five calendar years as an exempt student, F-1 employees generally don't count their days toward the substantial presence test, the IRS calculation that decides who counts as a US tax resident. That is not five years of tax-free status. It just means those particular days don't count toward that one test, and the employee still pays federal income tax normally the whole time.
Any part of a calendar year generally counts as one full calendar year. An employee who first entered in December 2022 generally uses 2022 as calendar year one, so the five calendar years are 2022 through 2026, and the review should happen before January 1, 2027, not in December 2027. Previous time in F, J, M, or Q status can also affect the calculation, so the employee's first I-20 or first F-1 entry date alone may not give you the full answer. See IRS explanation.
Once those five calendar years pass, the employee's days in the US start counting toward the substantial presence test, which weighs the current year and portions of the previous two years. If enough days count toward the IRS test, the employee will generally become a US tax resident and the usual F-1 FICA exemption will generally end. The payroll tax advisor should confirm the result and its effective date before payroll changes withholding. Once H-1B status begins, days in the United States generally count toward this same calculation. See the IRS substantial presence test and foreign student FICA liability pages.
What to do: set an alert for December 1 of the employee's fifth exempt calendar year. Before January payroll, ask your payroll tax advisor to review these records rather than calculating the date yourself from a single entry record:
- The employee's complete US immigration and travel history, including previous F, J, M, or Q periods.
- Available Forms I-20, DS-2019, I-94, visa records, and previously filed tax-residency forms.
- The employee's online I-94 travel history at i94.cbp.dhs.gov as a supporting record, recognizing that it may not include every older entry.
Standard handoff to payroll
Confirm whether the H-1B case requires the employee to travel before it takes effect, or changes their status while they stay in the US.
Confirm whether the case is pending, approved, denied, or withdrawn.
If approved with the change of status effective in the US, get the full approval notice, check the I-94 attached to the bottom, and confirm the start date.
If the employee traveled, get their newest I-94 and have counsel confirm which one controls.
Ask payroll or the payroll tax advisor whether the employee's tax-residency review has been completed, including the five-calendar-year review when applicable.
Ask payroll or the payroll tax advisor to confirm the employee's current FICA treatment, including whether a Social Security agreement with the employee's home country applies.
Send payroll the confirmed date and the documents behind it. Don't tell them to switch every case on October 1 automatically.
Handle the employee's Form I-9 update as a separate task.
Keep Form I-797A, the attached I-94, and any newer I-94 on file with the decision.
FAQs and sources
Not automatically. Cap-gap, when it applies, is about work authorization. Whether the employee's FICA exemption still applies is a separate question, and it depends on their current tax residency status, not on whether cap-gap covers them.
For a lottery-subject case, check the H-1B effective date on the I-94 attached to Form I-797A. If the I-94 shows October 1 but payroll started withholding later, the employer may need to make an adjustment. If the I-94 shows a later date, start Social Security and Medicare withholding on that later date. For a lottery-exempt case, use the effective date shown on the I-94 without using October 1 as a reference point. Ask the payroll tax provider to confirm any correction.
- IRS: Employers must withhold FICA taxes for aliens who change visa status to H-1B
- IRS: Foreign student liability for Social Security and Medicare taxes
- IRS: Exempt individual who is a student
- IRS: Substantial presence test
- IRS: Taxation of alien individuals by immigration status: H-1B
- USAGov: Form I-94 arrival-departure record
- Federal Register: Modernizing H-1B Requirements, Providing Flexibility in the F-1 Program, and Program Improvements Affecting Other Nonimmigrant Workers (Dec. 18, 2024)
This article is for informational purposes only and does not constitute legal or tax advice. Consult qualified immigration counsel and your payroll or tax advisor before making decisions about your sponsored workforce.
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