No Citizenship Tax Gap: Top Salary Tax-Savings for U.S. Employees

(UNITED STATES) — Starting January 1, 2026, the IRS’s inflation-adjusted amounts for tax year 2026 take effect, changing how much income many workers can shield from federal tax through the standard deduction and related wage-based planning.

For immigrants, the headline is simple. If you are a U.S. tax resident, your core federal income tax rules for wages generally match U.S. citizens’ rules. That includes many Green Card holders and long-term visa holders who meet the Substantial Presence Test. The practical change for 2026 is that the inflation-adjusted amounts can shift your taxable income even if your salary stays the same.

The IRS explains the resident vs. nonresident framework in Publication 519, U.S. Tax Guide for Aliens (IRS Pub. 519, PDF: irs.gov/pub/irs-pdf/p519.pdf). General filing rules and deductions are covered in Publication 17 (irs.gov/forms-pubs).

📅 Deadline Alert: For tax year 2026 (returns filed in 2027), Form 1040 is generally due April 15, 2027. An extension moves the filing deadline to October 15, 2027, but not the payment deadline.

What changed for tax year 2026 (effective January 1, 2026)

For many salaried workers, the most visible change is the standard deduction amount used to compute taxable income on Form 1040.

• Standard deduction (2026): $14,600 (Single) and $29,200 (Married Filing Jointly).
• These amounts matter whether you are a citizen or an immigrant, as long as you file as a resident alien.

This interacts with employer benefits that reduce wages subject to income tax, such as traditional 401(k) contributions, HSAs, and FSAs. (See IRS Publication 969 for HSAs and FSAs, and IRS IRA guidance in Publications 590-A and 590-B at irs.gov/forms-pubs.)

Before/After: 2025 vs. 2026 comparison (core amounts)

Below is a quick comparison for the standard deduction amounts used on most resident returns.

Even when a headline number does not move much, the “law change” effect is real for planning. Payroll, withholding, and benefit elections reset each year.

Who is affected (and who is not)

Affected

You are generally in scope if you are a U.S. tax resident for 2026 and earn wages reported on Form W-2, including:

• U.S. citizens
• Green Card holders (resident under the Green Card Test)
• Many H-1B, L-1, O-1, and TN workers who meet the Substantial Presence Test
• Some F-1 OPT workers who later become residents under the Substantial Presence Test

Under IRS Pub. 519, tax residents generally report worldwide income on Form 1040, not just U.S. income.

Not affected in the same way

You may face different rules if you are a nonresident alien for 2026. Nonresidents often file Form 1040-NR and may have limits on deductions. IRS Pub. 519 covers these differences, including common student and scholar exceptions.

⚠️ Warning: Dual-status taxpayers often cannot use the standard deduction for the dual-status year. This is a frequent filing error after a mid-year move or status change. See IRS Pub. 519.

Practical impact: what this means for salaried employees

The main planning point is that the tax code rewards structure, not “regular” investing.

Tools that often reduce current-year taxable income for tax residents

These strategies are widely available, regardless of citizenship, when you qualify and elect them correctly.

• Traditional 401(k) or similar employer plan contributions (reported on Form W-2)
• HSA contributions if you are covered by a qualifying HDHP (IRS Pub. 969)
• Health FSA and Dependent Care FSA salary reductions (IRS Pub. 969)
• In some cases, deductible IRA contributions (IRS Pub. 590-A)

Items that usually do not reduce current-year federal taxable income

• Mutual funds, CDs, savings accounts, gold, and most life insurance premiums
• These can be useful financially, but they usually do not create a wage deduction on Form 1040

Examples (tax year 2026)

These examples assume the worker is a U.S. tax resident for 2026 and files Form 1040 in 2027. Dollar results vary by bracket and state.

Example 1: Green Card holder uses a traditional 401(k)

• Status: Green Card holder (tax resident).
• Wages: $100,000.
• Action: Contributes $20,000 to a traditional 401(k) through payroll.

Impact: W-2 wages for income tax purposes can drop, reducing taxable income alongside the $14,600 standard deduction. The rules mirror a citizen’s rules.

Example 2: H-1B worker combines 401(k) and HSA

• Status: H-1B (typically a tax resident after meeting the Substantial Presence Test).
• Wages: $130,000.
• Action: Contributes to a traditional 401(k) and an HSA while covered by an HDHP.

Impact: Two separate pre-tax lanes can reduce taxable wages and adjusted gross income, if you meet the HSA eligibility rules in IRS Pub. 969.

Example 3: F-1 OPT worker must confirm residency first

• Status: F-1 on OPT.
• Wages: $65,000.
• Action: Contributes $8,000 to a 401(k).

Impact: The contribution may still reduce taxable wages, but the bigger issue is resident vs. nonresident status. Many F-1 students are exempt from counting certain days toward the Substantial Presence Test. IRS Pub. 519 explains this.

Transition rules and “grandfather” situations to watch

For tax year 2026 planning, the most common transition issues come from residency changes, not citizenship.

1. First year as a tax resident: You might qualify for a “first-year choice” in limited cases. See IRS Pub. 519.
2. Dual-status year: If you switch from nonresident to resident mid-year, you may file a dual-status return. The standard deduction is often not allowed.
3. Treaty tie-breaker claims: Some individuals who meet U.S. residency tests still claim nonresident treatment under a treaty. Treaty positions can trigger Form 8833. See IRS Publication 901 (U.S. Tax Treaties) at irs.gov/forms-pubs.

Foreign reporting still applies to many tax residents (separate from wage planning)

If you become a tax resident in 2026, you may have foreign reporting duties even if your salary is only from the United States.

• FBAR is FinCEN Form 114 (filed electronically). The IRS FBAR hub is at irs.gov/individuals/international-taxpayers.
• Form 8938 is filed with your tax return (FATCA reporting). See Form 8938 instructions on irs.gov/forms-pubs.

Recommended actions and timeline (tax year 2026)

1. January–March 2026: Confirm whether you will be a U.S. tax resident for 2026 under IRS Pub. 519.
2. During 2026 open enrollment: Elect HSA/FSA and Dependent Care FSA if eligible (IRS Pub. 969).
3. Any time in 2026: Review Form W-4 withholding after raises, marriage, or a new child.
4. January–April 2027: Collect W-2s and any foreign account statements for FBAR/Form 8938 if required.
5. By April 15, 2027: File Form 1040 (or extend to October 15, 2027). Pay any balance by April 15.

⚠️ Disclaimer: This article is for informational purposes only and does not constitute tax, legal, or financial advice. Tax situations vary based on individual circumstances. Consult a qualified tax professional or CPA for guidance specific to your situation.