All too taxing? The burden of US payroll taxation … and how to make it easier

11/07/2016 | Posted by:

The burden of US payroll taxation and how to make it easier

Hiring employees in the USA means tackling a highly complicated tax system, but we can help take the pain out of payroll…

If you’re an employer you’d expect to pay taxes on every salary on the payroll, but If you’re hiring workers in the USA you may not be aware how much of an obligation this can be. It’s your responsibility to deduct the correct amount from each paycheck and pay the funds to the correct government agency by specific deadlines. If you don’t meet the requirements you can be liable for additional fees; and if you ignore these responsibilities there are severe penalties.


Tax from all directions

There are three levels of taxation in the USA – federal, state, and local. Each US state dictates its own level of income tax and some cities, such as New York, levy an additional local tax.

In addition to income tax there are other payroll taxes, in particular Social Security and Medicare tax, often known collectively as the FICA (Federal Insurance Contributions Act) tax:

  • Social Security Tax provides benefits for retired and disabled US workers and their beneficiaries, and is 6.2% of the first $118,500 of an employee’s annual salary.
  • Medicare Tax provides health benefits for US citizens aged 65 and older, and is 1.45% of an employee’s annual salary (with an additional 0.9% levied on annual incomes in excess of $200,000).

In addition to payroll taxes, if you’re hiring workers in the USA you may need to keep back additional funds if the courts require you to pay an employee’s debt or child support. In such cases your employee would file a W-4 form, which determines the amount based on factors such as the employee’s marital status; how many withholding allowances the employee claims, and any additional amounts the employee chooses to withhold.


The easy way

Given the complexity of payroll taxation in the USA, and the risk of getting it wrong, most companies outsource to specialist services. Until now however, specialist payroll services have only been available for companies with a US legal entity. With Foothold America we wanted to change this, as part of our commitment to tackle every barrier for companies wanting to establish a presence in the USA.

By hiring a worker on your behalf, we take on all of your payroll tax obligations and responsibilities. For any overseas business looking to grow in the USA this represents a simple and innovative way to manage risk and reduce the considerable time and cost commitment of managing payroll taxes in the USA. It’s another way in which we make the complex simple, so that you can concentrate on building your business in the United States.

Interested in opening a US office but worried about US taxes? Foothold America can support your expansion and take care of taxes and other logistics – contact us today.