International employers have their work cut out for them. Since they employ people in multiple countries, they have to contend with the employment and payroll legislation in not just one, but many different locations.
Learning the rules and regulations in one market is often more than enough for a payroll team. You may need to bring in outside help or hire specialists to make payroll easier.
If you’re operating in the US, you might feel a little overwhelmed by US payroll taxes. There are many different rules to contend with, and one mistake can lead to a cascade of problems. This guide will help you master the basics, so you can conduct payroll for your American employees with ease.
The Different Levels of US Payroll
The first thing any international employer needs to know about US payroll taxes is that there are a few different levels and types of taxes.
The US has three levels of government. Depending on where you and your employees are based, you may end up having to pay federal, state, and local payroll taxes.
The types of taxes assessed at each level also differ. The federal government and state governments both collect income tax and unemployment taxes. Only the federal government collects FICA taxes.
Local governments may collect taxes for local infrastructure, such as schools or public transit.
Who Pays the Tax
Another key to understanding US payroll taxes is to know who is responsible for paying tax. Some taxes are collected from employees’ earnings. Others require a joint contribution from both the employee and employer. Still other taxes are the responsibility of the employer alone.
Both federal and state unemployment taxes are usually paid by the employer alone. In some states, though, employees share the costs of unemployment programs. FICA taxes, which include Medicare and Social Security, are always a joint payment. Employees and employers each pay half of the 2.9 percent contribution.
Income taxes are withheld from the employees’ earnings. The employer collects and remits the funds to the IRS, but isn’t expected to contribute to the payment.
Collections - Schedules and Payments
For every different tax an employer must collect, there’s a schedule to follow. Your schedule is often set by the size of your company. In general, it’s a good idea to determine which taxes you need to collect and remit. Then you’ll need to find out who the funds are remitted to. Some funds will be sent to the IRS, while others will be sent to the appropriate state or local authority.
Once you’ve determined who is receiving the funds, you’ll be able to read their rules for remittance schedules. The IRS will send you statements with this information.
There are also reports you’ll need to file for the different taxes you collect on your US payroll. Some taxes are reported on a quarterly basis, while others might have an annual reporting period.
Filing a report late and sending in payments after your deadline are some of the most common reasons employers face penalties.
Most US payroll taxes are based on employee earnings. Federal income tax brackets change as employees earn more. Medicare is capped at 2.9 percent up to $200,000. Employees earning more than this amount have to pay an additional percentage.
Some employers pay just a fraction of the federal unemployment tax rate. If you pay your state unemployment taxes on time, you could qualify for a discount.
Get the Support You Need
Now you know some of the fundamentals of US payroll taxes, which can help you avoid penalties. If you still need help, though, don’t be afraid to call in the experts. A PEO can make paying your US employees easier than ever.