Bradford Jacobs have over 20 years’ experience as a leading international payroll provider – experience that is vital for foreign companies dealing with tax laws in the United States of America. In addition to different tax rates and categories, employers also face layers of deductions, exemptions and limitations that are often revised annually.
Further complexities are added by taxes being applied at federal, state, county, city and municipal levels. Foreign businesses can thrive in the world’s largest economy, but these factors make it essential for companies planning expansion to rely on expert guidance from an international PEO and EOR such as Bradford Jacobs.
We safeguard your expansion plans by making certain you always comply with this intricate web of laws when onboarding new employees. Our specialists remove the burden of US payroll, tax and employment laws while you focus on building your business in the new territory.
Staff are employed through Bradford Jacobs’ payroll services with their income paid as salary, expenses, allowances or bonuses depending on their circumstances. Employees remain under the daily operational control of the parent company.
|Rate %||Single taxpayers||Married taxpayers|
|10%||$0 to 9,875||$0 to 19,750|
|12%||$9,876 to 40,125||$19,751 to 80,250|
|22%||$40,126 to 85,525||$80,251 to 171,050|
|24%||$85,526 to 163,300||$171,051 to 326,600|
|32%||$163,301 to 207,350||$326,601 to 414,700|
|35%||$207,351 to 518,400||$414,701 to 622,050|
Most states also charge state income tax. Those that don’t, such as Texas, Florida and Nevada, generally make up for it with higher rates on property, investments, dividends and sales tax. In 2019 Delaware, Alaska, Nevada, Florida and Arizona were ranked most tax-friendly for individuals.
The tax year begins on January 1 and federal returns must be filed by April 15. Individual states have varying deadlines.
USA Corporate Tax
The US cut the headline corporate tax rate from 35% to 21%, more in line with the European Union average. Over 90% of small and medium businesses pay no corporate tax by ‘flowing through’ profits to owners who pay individual income tax on them.
USA Withholding Tax
Most US employers withhold tax due from employees’ salaries and pay the Internal Revenue Service on their behalf. US citizens and tax residents are taxed on worldwide income. Foreigners working in the US are usually subject to a 30% withholding tax on their US income, and parent companies that fail to comply risk severe penalties.
USA Indirect Tax
Forty-five of the US’s 50 states levy sales tax and many add indirect taxes at county and municipal level. Federal excise taxes are levied on specific goods and service such as motor fuel, airline tickets, tobacco, alcohol and health-related services. The most heavily taxed states in this regard are Louisiana, Tennessee, Arkansas, Alabama and Washington. The least taxed are Alaska, Hawaii, Wyoming, Wisconsin and Maine.
What USA Taxation Rules exist for Payroll?
Federal authorities do not dictate how frequently employees are paid, leaving it to state-level administrations to establish their own laws. Payroll regulations in the US do, however, apply at both state and federal levels and require businesses to withhold income tax and social security contributions from their employees during each pay-cycle. Employers are responsible for calculating and paying tax to the Internal Revenue Service (IRS).
In the US, income tax is levied at federal and state levels. At federal level, employers must withhold income taxes from employee salaries at graduated rates of 10%-37% depending on earnings. Forty-one states (including Puerto Rico and Washington DC) charge income tax at rates set by individual state legislatures. Wages generally subject to income tax in the US include salaries, vacation allowances, bonuses, commissions and fringe benefits.
The Federal Income Contributions Act (FICA), legislates for social security and Medicare taxes. Employers and employees contribute and the tax must be withheld by employers from employees’ wages. FICA taxes include Old Age, Survivors, and Disability benefits (OASDI) at 6.2% for both employers and employees (12.4% total), and Medicare, charged at 1.45% for both employer and employee (2.9% total).
States are also required to participate in the federal unemployment insurance system under the Federal Unemployment Tax Act. Contributions, benefit amounts, and qualification requirements for unemployment insurance vary by state.
For federal taxes, employers file a quarterly Form 941 to reconcile all wages and taxes paid during the three-month periods of Jan-Mar, Apr-Jun, Jul-Sep and Oct-Dec. An annual Form 940 is filed to report and pay federal unemployment taxes due. Monthly, quarterly and year-end processes for state and local jurisdictions vary by taxing authority.
What USA Payroll Options are available for Companies?
Companies running their own payroll in the USA face layers of complications as they try to comply with federal regulations as well as individual state laws. For example, if an employer has operations in more than one state, income tax may have to be withheld for multiple states. The employer might need to withhold income tax for multiple states from the wages of one employee. Withholding becomes complex when an employee lives in one state and works in another or performs services in more than one state.
Bradford Jacobs’ payroll solutions will navigate around these potential pitfalls effectively and efficiently by putting into action our total understanding of the federal and state tax and payroll laws.
As part of our service, we file returns and associated payments for wage tax and social security contributions directly from our payroll system to the relevant authorities. Staying up to date with federal, state and municipal laws is a crucial element of our payroll services. Our role includes:
- Ensuring employee has correct documentation, including Form I-9, allowing them to work in the US
- Completing Form W-4 detailing withholding tax to be taken for federal tax
- Registering the employee with the relevant state’s Labor Agency
- Ensuring the employer has worker’s compensation insurance in place, which can vary between states
- Advising on payroll method so the employee can receive their wages. This involves paying employees, paying payroll tax to the Internal Revenue Service (IRS) and the state’s tax agency if applicable and filing tax returns.
Outsourcing payroll is the cost-effective, time-saving and simple method of promptly paying employees, filing tax returns, fulfilling social insurance requirements and ensuring compliance with the many layers of US federal and state laws. Bradford Jacobs provide one hundred per cent solutions to remove the stress from what would be a major and expensive commitment.
What is required to set up USA Payroll?
As the strongest economy in the world, the United States is a prime target for international expansion. But companies planning to move in must comply with basic legal requirements attached to running payroll, paying particular attention to income tax, the minimum wage, overtime pay and employee benefits.
All companies are required to have a legal entity established in order to process payroll. An employer must have an Employer Identification Number (EIN) before remitting forms and withheld taxes to the Internal Revenue Service (IRS). Employers can apply for an EIN online using the IRS website. Employers must also register to pay federal taxes electronically through the Electronic Federal Tax Payment System.
- Employers must be set up to withhold income tax from their US-based employees and submitting taxes to the Internal Revenue Service. Employers must complete form W-4 which legally entitles them to take withholding tax
- Employers must also withhold state income tax if they, or any of their employees, are located in states where this applies
- Additional federal and state taxes are paid to comply with the Federal Unemployment Act
- The National Minimum Wage varies between federal and state laws. Where states set their own minimum wage, such as Alaska or California, the higher rate applies
- Payroll must be set up to deal with overtime pay. Employees who are covered by the Fair Labor Standards Act (FLSA) are entitled to one-and-a-half times their regular pay rate if they work more than 40 hours a week.
- Payroll platforms must also comply with the Federal Insurance Contributions Act (FICA) and withhold taxes for social security and Medicare, matching the payments that are taken from employees’ salaries
- Employers must keep payroll documentation for three years, including employment contract, social security number and their I-9 employment eligibility verification form, time cards and payment records. Some states require other data to be kept and in California and New York, for example, documentation must be retained for six years
- The US has no federal legislation requiring remuneration for sick leave, maternity leave or vacations. Companies that decide to offer these benefits must incorporate the payment provisions in their payroll system
What Entitlement/Termination Terms apply to USA Payroll?
Unless terms of notice, termination and entitlements or a period of ‘garden leave’ are specified in an employer-employee contract, employees working ‘at-will’ are not generally entitled to be given a period of notice. Payroll will continue to operate as dismissed employees are entitled to receive their final pay.
Eligible employees have the right to continued healthcare coverage for a period and to receive unemployment benefit from the government. They may be entitled to severance pay according to state laws if it can be proved the employer led the employee to believe they would receive severance.
‘At-will’ employment can be terminated by either party without notice, but can be unlawful if there was an implied contract; if it violates public policy, federal, state or local laws; if it is based on discrimination or retaliation.
If an employer comes under the Worker Adjustment and Retraining Notification Act (WARN) there are termination safeguards for their employees in the case of closure and laying off more than 50 workers at a single site. In this case workers must be given 60 days’ notice.
Contact Bradford Jacobs’ Global PEO Payroll Services
Companies who plan to launch their own subsidiary in the United States of America will need a clear understanding of the federal, state, county and municipal laws that apply to running payroll to pay wages, pay the tax and social security authorities and file returns to the Internal Revenue Service. The employment landscape in the US is vastly different to most other economies, particularly in the realm of contracts, termination and severance. It is quite normal for there to be no contract at all between employers and employees, with the latter working ‘at-will’. As your Employer of Record, Bradford Jacobs will stay on top of all these issues and stay up to date with frequently changing legislation.