Taxes and Health Insurance for E-2 Visa Holders: What Changes When You Move

Investors plan the visa carefully and the business carefully, and then discover in April that they owe U.S. tax on income earned in their home country, or in January that their family has no health coverage because there is no employer to provide it. Both problems are avoidable with planning before the move. This article covers the essentials; the specifics of your situation belong with a cross-border accountant.

Immigration status vs tax residency

The E-2 is a nonimmigrant visa, and applicants must show intent to depart eventually. None of that affects tax. U.S. tax residency for non-citizens is determined by the substantial presence test: you are a resident alien for a calendar year if you are present in the U.S. for at least 31 days that year and 183 days over a weighted three-year period, counting all days in the current year, one-third of the days in the prior year and one-sixth in the year before that.

Most E-2 investors who move to the U.S. become resident aliens in their first full calendar year, and often in the year of arrival if they arrive early enough. From that point you are taxed like a U.S. citizen: on worldwide income, with U.S. reporting obligations for foreign assets.

The year of arrival is usually a dual-status year: nonresident for the part before you arrived, resident after. Get this year right, because elections made in the first return affect later ones.

Worldwide income and treaties

As a resident alien you report income from everywhere: rental income in your home country, dividends from a foreign company you still own, interest, capital gains and salary earned before the move if paid after it. Double taxation is mitigated by the foreign tax credit and by tax treaties, which the U.S. has with many but not all E-2 treaty countries. Treaties also contain tie-breaker rules for people who are residents of both countries under domestic law.

Sales of assets abroad after you become a U.S. resident are U.S. taxable events. Many investors sell property or business interests before the move for exactly this reason. Timing matters and should be planned months ahead.

How your E-2 company is taxed

Single-member LLC. Disregarded for tax; the business income flows to your personal return on Schedule C, subject to income tax and self-employment tax.

Multi-member LLC or partnership. Passes income through to owners; the entity files Form 1065.

S corporation. Attractive for many small businesses because it splits income between salary and distributions, reducing self-employment tax. But S corporations may only have shareholders who are U.S. citizens or resident aliens for tax purposes. An E-2 holder who is a resident alien can qualify; one who is not yet resident, or whose foreign company owns shares, cannot.

C corporation. Taxed at the entity level at 21% federal, with dividends taxed again to shareholders. Simpler for foreign ownership and for businesses that reinvest profits or plan to raise capital. Common when a foreign parent company owns the U.S. business.

The choice affects your visa case indirectly: officers do not care about tax elections, but the structure must keep treaty-national ownership at 50% or more. See our article on LLC or corporation for the E-2.

Paying yourself

You may draw a salary from the company, take owner distributions, or both, depending on entity type. Salary is subject to payroll taxes and requires a payroll system; distributions from an LLC are subject to self-employment tax. A modest, documented salary is also useful evidence at renewal that you are actively working in the business.

State taxes

State income tax ranges from zero in Texas, Florida, Nevada, Washington, Tennessee and a few others to over 10% in California and New York. Business taxes, franchise taxes and sales tax obligations also vary. Many E-2 investors choose the state for business reasons first, but the tax difference for a family earning several hundred thousand dollars is material and worth including in the decision.

Foreign asset reporting

Resident aliens must report foreign financial accounts exceeding $10,000 in aggregate on the FBAR, and specified foreign financial assets above thresholds on Form 8938. Ownership of a foreign corporation may trigger Form 5471 and, depending on the company’s income, GILTI inclusions. Penalties for non-filing are severe and unrelated to the tax owed. Investors who keep an operating company at home should get advice on this before their first U.S. return.

Health insurance

The United States has no universal public coverage for working-age residents, and the E-2 gives you no employer. Options:

Small-group plan through your company. Once you have at least one employee besides yourself (in many states, a spouse employee counts), the company can buy a small-group plan and deduct premiums. This is the route most E-2 families use once the business is staffed.

ACA marketplace. E-2 holders are lawfully present and eligible to buy individual and family plans on the marketplace during open enrollment or after a qualifying event such as moving to the U.S. Premium tax credits are available based on income, and since lawfully present immigrants below certain income levels can qualify even where citizens would fall into Medicaid gaps, some E-2 families qualify for subsidies in the first low-income start-up year.

Private and short-term plans. Available immediately but often exclude pre-existing conditions and cap benefits. Useful as a bridge for the first weeks.

International plans. Some investors keep an international health plan from home. Check that it meets U.S. minimum essential coverage rules or expect to buy U.S. coverage in addition.

Budget $1,500 to $2,500 per month for a family of four on a mid-level plan, more in high-cost states. Dental and vision are separate.

Social Security and Medicare

Payroll taxes fund Social Security and Medicare. Years of U.S. work count toward eventual benefits, and totalization agreements with many treaty countries prevent double contribution and allow combining credits. Medicare eligibility at 65 requires 40 quarters of coverage or purchase of coverage; E-2 investors who move in their fifties should factor this in.

Children and education

Public schools are free for resident children of E-2 holders. In-state tuition at public universities depends on state residency rules, which E-2 families often satisfy after one year of domicile, though some states exclude nonimmigrants. The 529 college savings plan is available to resident aliens.

Practical checklist before you move

1. Engage a cross-border accountant in both countries.
2. Decide on asset sales and timing before becoming a U.S. resident.
3. Choose the entity type with tax residency and ownership rules in mind.
4. Set up payroll before the first employee, including yourself.
5. Arrange health coverage for the arrival date, not after.
6. Inventory foreign accounts and companies for reporting.
7. Understand the departure rules of your home country for tax and social security.

We are not tax advisors, and this article is general information. What we do is build the E-2 business with these issues in view, from entity selection to the first payroll, working alongside CPAs who handle investor clients. If you are planning your move, tell us your timeline and we will connect the pieces.