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International Companies FAQ: Who Pays Payroll Taxes in the US?

Posted by Corinne Camara

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Apr 10, 2019 9:00:00 AM

international-companies-faq-who-pays-payroll-taxes-in-the-usAs you expand your business operations across international borders, you have to familiarize yourself with new regulations. Employment law is one major area of concern. Health and safety might be another. Most international companies are also concerned with business structure and tax programs.

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Another worry you likely have is US payroll. Most international companies deal with payroll, and most people have questions about how to handle tasks like calculating overtime and paying payroll taxes.

You may even ask, “Who pays payroll taxes in the US?” The answer is a bit more complicated than you might expect.

Who Pays Payroll Taxes in the US?

Several entities may be called on to pay payroll taxes in the US. The most likely scenario is that you as the employer will need to handle payroll taxes for your employees.

As the employer, you’re in charge of paying your employees. You know they’ll need to pay a certain portion of their income to the IRS at the end of the year. If they don’t, you could end up on the hook for their missing payments.

Employers are thus mandated to hold back a portion of an employee’s paycheck and submit that money to the IRS. This is a form of “safe keeping.” Individuals are less likely to save on their own, so this makes it easier for your employees to know they won’t owe the IRS large lump-sum payments.

It also means the IRS won’t turn to your company to find the money your employees aren’t paying them.

The IRS requires employers to remit their payroll taxes on a regular basis.

Contractors Pay Payroll Taxes in the US

There’s another group that comes to mind when you ask, “Who pays payroll taxes in the US?” Contractors are responsible for their own payroll taxes.

Independent contractors, or 1099 employees as they’re sometimes known, act as independent businesses. They’re more like partners than employees. You might hire them to deliver certain services or to produce a product.

Since they’re operating as their own business entities, you’re not responsible for collecting and paying payroll tax for them. These self-employed entrepreneurs will be responsible for remitting their own taxes.

You want to be sure you’re filing the proper paperwork on 1099 contractors. Use the IRS’s assessment to determine whether someone is a contractor or an employee to avoid misclassification. Then have the contractor sign the right forms to release you from withholding obligations.

A PEO Handles Payroll Tax on Your Behalf

There’s another type of entity that can pay payroll taxes in the US. That’s the professional employer organization, or PEO.

Many international companies hire PEOs to help them conduct payroll activities in the US. Generally, the international company pays a fee to the PEO that helps them cover salaries, benefits, and other costs associated with employees.

The PEO would be responsible for paying payroll taxes. Since they’re handling your payroll, they’ll calculate not only what employees should be paid but also what needs to be held back and remitted to the IRS. Although you’re ultimately paying the tax, the PEO handles the calculation, paperwork, and remittance.

So, who pays payroll tax in the US? Several different entities may be responsible. If you need a hand with your payroll, talk to a PEO and discover how they can help.

7-challenges-companies-face-when-expanding-into-the-us

Topics: Payroll

Corinne Camara

Corinne Camara, an expert in the recruitment field with over 10 years of experience in the staffing industry, is a business development specialist at The Staffing Edge. She previously worked at Apple One as a recruitment specialist and needed a change from the day-to-day recruiting, but still wanted to remain in the industry. Corinne’s knowledge and expertise gives her an edge in helping new members understand the back office model. Corinne has the unique ability to relate to current and new members; she understands their business and day-to-day struggles. She feels rewarded when she helps onboard a new member to outsource the worry and help them see their profits grow. Outside of work, Corinne enjoys spending time with her children, home improvement projects, interior design, and painting.
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