Pay Disclosure and Pay Equity – How to Keep Your Employees, And the Law, Happy with Your Compensation

For foreign students and scholars in the U.S. on F-1 or J-1 visas, taxes are like entering a labyrinth with few clues. Not being U.S. citizens or permanent residents, F-1 and J-1 visa holders tend to be governed by varying tax laws, which turn payroll deductions and IRS tax reporting into a bewildering, and at times expensive, ordeal. If you've ever questioned why Social Security and Medicare taxes (FICA) have been taken out of your paycheck or wondered if you can get a refund, you're not alone.

In this article, we’ll break down the most common tax pitfalls for F-1 and J-1 visa holders, explain key exemptions like the FICA exemption, and provide clarity on IRS tax filing and payroll deductions. Whether you’re an international student earning through on-campus jobs or a visiting scholar conducting research, understanding your tax rights is essential for avoiding errors and potentially recovering lost money.

Understanding Your Visa Status and Tax Residency

Let's begin with an elementary principle: not everyone holding an F-1 and J-1 visa qualifies as "residents" for tax purposes. The IRS applies what is termed the "Substantial Presence Test" in deciding whether an individual meets the classification as a resident alien or a non-resident alien. The majority of students holding an F-1 visa qualify as non-resident aliens for the first five calendar years that they remain in the United States, while J-1 scholars and researchers are accorded two years.

This is significant because non-resident aliens are generally exempt from FICA taxes, which are Social Security and Medicare taxes. But most employers, particularly smaller organisations or third-party payroll vendors, incorrectly use regular payroll deductions on all persons without inquiring about their visa status.

The FICA Exemption: A Right Often Overlooked

The FICA exemption is perhaps the most commonly misunderstood component of U.S. taxation for international scholars and students. If you hold an F-1 or J-1 visa and are a non-resident alien, you shouldn't be charged FICA taxes. This applies to income from on-campus work, Curricular Practical Training (CPT), or Optional Practical Training (OPT).

Too often, students find out too late that their paychecks were being withheld to cover FICA taxes they didn't really have to pay. Fortunately, you can recover these funds by requesting a refund from your employer, or, failing that, from the IRS on Form 843 and documentation of your visa and tax status.

This exemption can make a big impact. For a person making $20,000 per year, FICA taxes can be more than $1,500—a lot of money for a student or entry-level academic.

J1 Visa Tax Exemption and Special Considerations

Though the FICA exemption is generally applicable, there are special nuances for J-1 visa holders. The J1 tax exemption for researchers and scholars exists for a maximum of two calendar years, subject to their country of origin and individual treaty agreements. This exemption can affect both income tax liability and tax refund eligibility.

But after that two-year period, a J-1 visa holder can then become a tax resident under IRS regulations and therefore be subject to normal payroll deductions. It is important to keep track of how long your exemption lasts, as the change can bring new responsibilities, such as initiating FICA withholding.

Filing Taxes the Right Way: Don't Assume TurboTax Has You Covered

Most F-1 and J-1 visa holders improperly use commercial tax software such as TurboTax or H&R Block, which tend not to be intended for IRS filing by non-residents. Incorrect filing can result in delay of processing, IRS notices, or disqualification from tax treaty benefits.

Instead, seek tax services specifically for non-resident aliens. Programs such as Sprintax or Glacier Tax Prep are designed to deal with the specific forms and requirements of non-resident returns. Filing an incorrect return (e.g., a 1040 rather than the 1040-NR) not only creates problems now, but also in subsequent immigration applications.

One more thing to keep in mind: even if you received no income, most F-1 and J-1 visa holders must file Form 8843 every year. This keeps your visa status and residency period properly recorded by the IRS.

Tax Refunds for Non-Residents: Yes, You Can Get Money Back

It's a popular myth that non-residents can't receive tax refunds. Tax Refunds for Non-Residents are frequently not only likely but also anticipated. If federal or state taxes were withheld from your paycheck, and your earnings are below the taxable threshold, you might be eligible for a refund.

Filing correctly and on time is essential. Be sure to gather your W-2, 1042-S (if applicable), visa documentation, and Social Security or ITIN number. Tax treaty benefits can also reduce your liability or increase your refund, depending on your country of residence and the treaty terms.

Avoid Common Payroll Deductions Mistakes

Errors usually occur at the payroll level. You should remind your employer's HR or payroll department so that they know your tax residency status. You should give them your visa documentation and ask to be exempted from FICA if you are eligible.

The employer might necessitate the written signature or fill-out forms such as IRS Form 8233 to certify tax treaty benefits or FICA exemption status. Don't take a chance it's done right—take steps for yourself upfront to avoid the hassle of refunds down the line.

Final Thoughts: Be Proactive, Stay Informed

Navigating the U.S. tax system as a non-resident is undoubtedly complex, but it’s not impossible. By understanding the rules surrounding F-1 & J-1 visas, IRS tax filing, payroll deductions, and exemptions like FICA and J-1 visa tax exemptions, you can take control of your finances and avoid costly errors.

Always review your pay stubs for erroneous deductions, keep precise records of your history of visas, and employ tax services that are tailored to your case. All these little things save you so much stress—and cash—when April rolls around.

At Humaanized, our webinars are led by experts to keep you informed on key HR and compliance issues—including mandatory updates for visa holders, IRS rules, and payroll compliance. If you're an employer dealing with international staff or an employee on an F-1 or J-1 visa, our webinars are designed to help you stay compliant in an ever-evolving regulatory environment.

When talent gaps are growing and job functions are changing at breakneck speed, conventional hiring practices are lagging behind. Companies that hold on to degree requisites and out-of-date job descriptions are being left in the dust. Meet a more flexible, diverse, and forward-looking strategy: skills-based hiring. This approach, which prioritizes skills over pedigree, is fast becoming a game-changer in the talent acquisition competitive arena.

Why Skills-Based Hiring Is More Important Than Ever

Why skills-based hiring is on the rise has much to do with the workforce realities of today. The fast speed of technology has dwarfed the speed with which formal education can keep up. And in the meantime, workers are being upskilled by boot camps, online certificates, and experience on the job. With an eye for proven skills instead of degrees or years of experience, organizations can open up a broader and more varied talent pool.

This strategy also promotes increased workplace fairness. Long-standing recruitment practices have even excluded underrepresented groups because educational access barriers have been a hindrance. Skills-based hiring equalizes the playing field and enables more diverse recruitment, which has immediate effects on an organization's diversity and potential for innovation.

How to Implement Skills-Based Hiring

It begins with reconsidering the job description. Rather than quantifying years of experience or identifying degrees, outline the actual competencies necessary for the position. These could be technical abilities, soft skills, or position-specific knowledge.

Second, construct testing instruments that directly probe these abilities. This may include job simulations, skill tests, or portfolio examinations. Situational or behavioral interview questions in structured interviews also reveal how candidates have utilized their abilities in actual situations.

One of the most practical actions in putting skills-based hiring into practice is training your recruitment team. Recruiters and hiring managers must be in sync as to what skills are most essential and how to assess them fairly and consistently.

The Role of AI in Skills-Based Hiring

AI within skills-based hiring isn't a buzzword; it's a key component of scaling this practice successfully. AI-powered tools can scan resumes and internet profiles to find indications of skills, even where the candidates employ different vocabulary or layout. It can also pair candidates with job postings based on demonstrated capabilities, not merely keyword matching.

In addition, AI can be used to reduce bias if employed wisely. For instance, anonymized AI-driven screening tools can strip away identifiers such as name, school, or gender, and qualify candidates solely on merit. If combined with DEI initiatives, AI-based hiring methods then become a powerful partner in fostering workplace equity.

Cost Savings and Business Impact

Let's speak about the bottom line. One of the most underutilized advantages of skills-based hiring is the cost savings skills-based recruitment provides in the long run. The conventional recruitment processes are usually full of inefficiencies: high turnover due to misfit, long onboarding, and extended vacancy duration. By recruiting based on skills, you're likely to have a candidate who can start immediately, saving training expenses and time to productivity.

Furthermore, since skills-based hiring tends to provide a way in for non-traditional candidates who are willing to accept less pay than their degree-holding counterparts (without compromising performance), you also gain payroll savings down the line.

And don't forget retention. Strengths- and ability-hired employees are more likely to feel appreciated and satisfied, leading to longer tenure and lower costs of hiring.

Conclusion: From Trend to Talent Strategy

Implementing skills-based hiring is not a nice-to-have; it's becoming a strategic imperative. It provides businesses with untapped talent pools, fuels diversity and inclusion, enhances performance, and saves money. More importantly, it aligns your recruitment process with today's workforce—agile, diverse, and skills-driven.

As businesses everywhere start adopting this fresh model, the first movers are gaining a competitive advantage. Those who remain mired in traditional hiring systems are running the risk of being left behind in the talent hunt.

At Humaanized, we get the changing needs of the workplace and the pressing demand for contemporary recruitment practices. That's why we offer expert-led webinars on human resources, such as in-depth explorations of why skills-based hiring is successful, how to adopt skills-based hiring, and the use of AI in skills-based hiring. If you're an HR leader, recruiter, or business executive, our sessions keep you in front of the pack. Come visit us to see how you can start changing your hiring strategy today.

As the workplace in America changes in harmony with the times, 2025 is already a year of record-breaking change for employers, HR practitioners, and employees. With drastic federal and state regulatory overhauls, businesses need to get ahead and stay in compliance while establishing a thriving work culture. From running a small business to running a multinational workforce, awareness of the change in employment law is key in keeping risk at bay and ensuring efficient operation.

So what's new in federal employment law in 2025? Let's see what the most important changes impacting workplace policy are and what they mean to your company.

1. Broader Protections for Pregnant and Lactating Workers

Supporting momentum in 2023 and 2024,  New Employment law 2025 called for the enforcement of the Pregnant Workers Fairness Act and PUMP Act. Employers are now legally obligated to make reasonable accommodations to pregnant and postpartum employees as well, such as extended periods of break time and separate, non-bathroom lactation areas. They are not tokenistic but are legally enforceable with severe punishment for violation.

The employers must update their existing policies, make the facilities available, and train the managers to handle requests for accommodations legally and efficiently.

2. Increasing Requests for Paid Leave

Most noticeably of the new 2025 labor regulations is more federal paid time off mandates. The Family and Medical Leave Act has been changed to add increased eligibility and an extended list of qualifying illnesses. Other states are going in the same direction with state-paid paid family and medical leave, causing private employers to follow the same direction.

HR managers can debate whether to go over management leave policies and restart leave accrual and payment again to catch up with federal and state updates.

3. Remote Work Rules: A Legal Rope Walk

As work-from-home and hybrid work cultures are taking over, spreading permanence, remote work employment law 2025 US compliance has been the back-burning issue. New regulations regarding wage and hour computation of remote employees have prompted the Department of Labour to ensure that time-tracking tools show correct hours and work in harmony with actual working time.

There also exists jurisdictional compliance problem—i.e., the employers must be compliant with new employment law in home states where teleworkers are based, not necessarily the corporation's home state. It has a big impact on overtime pay, break time, and job classification.

High-usage companies with telecommuting or hybrid designs must re-do their distribution of the workforce and review the employment contracts in order to stay compliant.

4. Reclassification of Independent Contractors

In an unexpected gesture, the Department of Labor established a new rule that fortifies the definition of independent contractors in a direction towards the "economic realities" test. This move approaches the provisions contained in California's AB5 bill that would classify tens of thousands of gig workers and freelance employees as employees.

This notification has important tax, benefits, and payroll implications. Employers with independent contractors or freelancer-independent workers must make the decision on each assignment whether reclassification is suitable—and do so under filing deadlines in the threat of penalty or suit.

5. Heightened Emphasis on Pay Transparency

Another breaking news development to the US 2025 wage and hour law is expanding pay transparency mandates. More states are requiring employers to post salary ranges on job postings, promote pay equity internally, and allow employees to discuss pay openly without harassment.

Employers are left with little choice but to formalize salary bands, document pay rationale, and train hiring managers to disclose pay arrangements clearly and compliantly.

The Equal Employment Opportunity Commission (EEOC) also brings more prominence to discriminatory pay practices, so advance filing and auditing are an investment well spent.

6. AI and Hiring Bias Laws

A wise follow-up on the employment law 2025 is laws addressing how artificial intelligence is applied in hiring. Because programmatic screening is now the norm, lawmakers now intervene to prevent such technology from perpetuating discrimination.

New laws require algorithms to provide explanations for their choices, provide applicants with a right to opt out of automated testing, and sanction discriminatory results.

If your organisation uses AI-powered tools for workers' selection or performance assessment, it is essential to test their impartiality and make their use transparent to applicants and employees.

7. Unionisation and Workers' Rights

The National Labor Relations Board has assisted employees to unionize by shortening the employers' response time to union organizing campaigns and forcing quicker election processes. Employers are also prohibited from coercing "captive audience" meetings that discourage unionisation.

As collective bargaining gains momentum in the old-line industries and new ones such as technology and media, the employers have to recognise and respect growing employee rights, and speak the truth to their employees.

Last Thoughts

Navigating the changes in employment law for 2025 requires more than just legal know-how—it demands adaptability, empathy, and a commitment to fostering a compliant and inclusive workplace. From remote work compliance to wage transparency and contractor classification, this year’s updates underscore a nationwide shift toward accountability, equity, and employee empowerment.

Keeping pace with these changes can be overwhelming, but you’re not alone.

Humaanized offers valid, expert-performed webinars that de-mystify leading-edge employment law advancements into practical solutions. You're an HR administrator, business executive, or compliance manager. What you do is not important - our compliance training will inform and safeguard you legally in 2025 and beyond. Look at our upcoming HR compliance webinars today and say goodbye to uncertainty.