When you hire in the US, you — as the employer — are responsible for calculating, withholding, and submitting payroll taxes from your team members’ pay slips. For some taxes, you are also required to make employer contributions.
In this article, we’ll explain clearly which taxes you need to withhold, which taxes you need to contribute to, and how to remit and make payments. So let’s jump straight in.
What is payroll tax?
Payroll taxes are the contributions employees and businesses make to state and federal governments to fund public programs, such as retirement, healthcare, and unemployment insurance. They typically include income tax and social contributions, and are set at pre-determined rates.
These rates (and the rules governing them) vary by country, but it’s every employer’s responsibility to ensure they are compliant, and that they are withholding and submitting the correct amounts.
What is the difference between payroll taxes and corporate taxes?
Generally, payroll taxes are tied to your employees’ wages, while corporate taxes are based on your company’s profits.
Which payroll taxes do you need to withhold from your employee in the US?
In the US, employers and employees are taxed at the state and federal levels (and, in some cases, at local levels).
At the federal level, the main taxes you’ll need to withhold are:
Federal income tax
The rate at which US residents are taxed depends on their filing status (i.e., whether they are filing alone, or jointly with their spouse). This status should be clarified on your employees’ W-4 form .
As an example, single taxpayers are currently taxed at the following rates:
Annual income ($) | Marginal tax rate |
$0 – $11,000 | 10% |
$11,001 – $44,725 | 12% |
$44,726 – $95,375 | 22% |
$95,376 – $182,100 | 24% |
$182,101 – $231,250 | 32% |
$231,251 – $578,125 | 35% |
$578,126+ | 37% |
You must withhold the correct amount from your employees’ pay slips based on these rates (or on the status-specific rates they have indicated on their W-4). Learn more about tax brackets in the US .
When to pay: As an employer in the US, the Internal Revenue Service (IRS) will determine your deposit schedule. This is based on your previous tax liabilities during a specific period, known as the “lookback” period. If your total liability during this period is $50,000 or less, you must pay monthly. If it’s over $50,000, you must pay every two weeks. If your business is new, you will need to pay monthly.
Social Security
Social Security taxes are used to provide benefits for retirees, disabled individuals, and surviving dependents of deceased workers. They are governed and managed under the Federal Insurance Contributions Act (FICA). Learn more about Social Security taxes as an employer .
The employee contribution for Social Security is currently a flat rate at 6.2% of gross wages (up to the annual wage base limit).
When to pay: At the same time as your income tax payments (see previous section).
Medicare
Medicare is the other component of FICA taxes . It is used to fund Medicare, a federal health insurance program primarily for people aged 65 and older.
The employee contribution for Medicare is also a flat rate, at 1.45% of gross wages.
When to pay: At the same time as your income tax payments.
You may also need to withhold employee taxes at the state (and local) level. For instance, most US states have their own income tax (although there are some exceptions, such as Florida, Texas, and Nevada).
In California, for example, you would need to withhold the federal taxes listed above, as well as state income tax (ranging between 1% and 13.3%), and state disability insurance tax.
To see which states have additional withholding requirements, check out our free US State Explorer tool:
You may also be required to withhold additional taxes for certain employees, such as child support payments, student loan repayments, or any other court-ordered garnishments .
Which payroll taxes does your business need to contribute to?
As well as withholding the taxes and contributions listed above, you are also required to make your own contributions, as follows:
Social Security
As an employer, you must match your employees’ Social Security contribution of 6.2%.
When to pay: At the same time as your employee federal income tax payments.
Medicare
You must also match your employees’ Medicare contribution of 1.45%.
When to pay: At the same time as your employee federal income tax payments.
FUTA / SUTA taxes
Under the Federal Unemployment Tax Act (FUTA), you must make an additional employer contribution to fund unemployment compensation programs. This is set at 6% on the first $7,000 of each of your employees’ wages, although most US employers are eligible for a tax credit of 5.4% (effectively reducing the FUTA tax to 0.6%).
Most states also have their own unemployment tax act and you will need to contribute to these too.
When to pay: FUTA taxes are paid quarterly. SUTA deposit deadlines vary by state, but are also often quarterly.
Again, each state has its own additional state-specific taxes and contribution requirements. Check out US State Explorer to see these in detail.
Alternatively, to quickly see a full breakdown of payroll taxes and employment costs for your US hire(s) based on their salary, use our free Employee Cost Calculator tool .
How do you remit and pay payroll taxes in the US?
To remit and pay federal employer and employee taxes and contributions, you will need to:
Calculate the correct amounts for withholding, and then add your employer contributions. If you use Remote Payroll or Remote EOR , we will do this for you.
Ensure that you adhere to the payment deadlines detailed above, and ensure that you have filled out the correct forms .
Make the payments through the IRS’s Electronic Federal Tax Payment System (EFTPS). You can also make the payment by bank transfer.
Note that, if you’re a Remote Payroll customer in the US, we can handle all these steps for you, including making the payments on your behalf. Learn more .
How do you manage payroll taxes as an international employer?
When you hire a US-based team member from abroad, there are several ways you can manage their payroll and payroll taxes.
If you already have your own legal entity in the US, you can:
Handle it in-house. You can hire your own payroll tax specialists and manage everything internally. This can be costly, however.
Use a local third party. You can hire a local firm to handle payroll, although this can be unreliable, costly, and pose data risks.
Use a PEO. A professional employment organization (PEO) acts as an outsourced HR provider, and includes payroll.
Use a global payroll provider. Global payroll providers — like Remote — have local specialists in multiple countries, ensuring that you are fully compliant with all tax requirements in each one. This is especially convenient if you have (or plan to have) employees in different countries, as you can manage all of them through one platform.
If you don’t have your own entity in the US and you still want to hire there, you can:
Set up your own entity. This can be extremely costly and time-consuming, but if you plan on establishing your business long-term in the US, it might be a viable approach. To pay your employees, you would then need to choose one of the options above.
Use an EOR. Employer of record (EOR) providers — like Remote — enable you to quickly and easily hire anywhere in the world, and also handle all the core HR functions (such as compliance and payroll). As well as being generally more cost-effective than opening your own entity, this option is highly scalable and, again, enables you to streamline all your global HR tasks in one place. How does an EOR work?
What about independent contractors?
In the US, independent contractors are classified differently to employees. As a result, they (in most cases) are responsible for calculating, managing, and paying their own taxes.
However, it’s crucial to understand the difference between contractors and employees, as you may inadvertently create misclassification risk . This can result in severe fines and penalties for your business. Learn more about hiring contractors in the US .
How can Remote help?
Knowing which payroll taxes you need to calculate, withhold, and contribute to requires local expertise, especially as these rules can — and do — change. And if you make a mistake or fail to comply, the financial consequences can be significant.
Whether you have your own entity in the US or not, Remote ensures that you are withholding and contributing the correct amounts, and that you are fully compliant at all times with local tax and employment laws. We also provide 24/7 support for any guidance you may need.
To see how we can help — and to learn which approach is the most suitable for your business — speak to one of our friendly payroll experts today.
