The US has similar payroll tax requirements to Australia. From withholding taxes on wages, to payment of payroll taxes assessed on wages paid, and lodgement of employee forms, there is a range of compliance requirements that your company must fulfill.
There are a wide variety of payroll tax considerations, including tax withholding and taxes payable on the amount of wages. These taxes are levied to fund social security, Medicare, unemployment and disability benefits, and other State and Local requirements.
- Employers are responsibility for withholding taxes from wages and paying this to the Federal government.
- Some States also require withholding taxes to be withheld in relation to the income taxes on employee wages.
- Employers must typically make regular payroll tax deposits and file quarterly payroll tax returns with the IRS.
- State and Local tax agencies often have their own reporting and payment requirements.
- Withholding taxes go towards the individual employee’s income tax obligations.
Payroll Tax Requirements
Federal Insurance Contributions Act (FICA) Taxes
- Funds social security and Medicare.
- Social security tax rate is 6.2% for the employee plus 6.2% for the employer.
- Medicare tax rate is 1.45% for the employee plus 1.45% for the employer.
- Additional Medicare is payable at 0.9% for the employee when their wages exceed $200,000 in a year.
Federal Unemployment Tax Act (FUTA) Taxes
- Funds state workforce agencies and unemployment insurance.
- FUTA is payable by the employer and is calculated at 6% on the first $7,000 paid to each employee.
- Payment of state unemployment taxes can often be used as a tax credit to bring the FUTA tax rate down to as low as 0.6%.
State Payroll Taxes
- State Payroll Taxes may apply depending on the location of your business.
- The most common State tax is State Unemployment Tax (SUTA), which is payable by the employer.
Local Payroll Taxes
- Additional payroll taxes may be payable based on the zip code, county or municipality where your business is located.
- At commencement of employment, employees fill out a Form W-4. This guides employers on how much income tax to withhold.
- At the end of each year, employers must provide employees with Form W-2, which reports the employee’s annual wages and tax withholdings.
- On commencing employment, employers are required to verify an employee’s eligibility to work in the US. This is typically done through the I-9 Form.
Other Payroll Considerations
- Workers Compensation Insurance
- State Disability Insurance
- Paid Leave
- Health Care Costs for Employees
- Retirement Plan Contributions
- Reimbursements and Stipends
Penalties For Missed Or Late Payments
The IRS may charge a late fee for employment taxes that are not paid on time. This is called a “Failure to Deposit Penalty”.
Payroll tax penalties are:
- 1-5 days late: 2% of the overdue payment
- 6-15 days late: 5% of the overdue payment
- Over 15 days late: 10% of the overdue payment
- More than 10 days from first notice: 15% of overdue payment
Other Employee Benefits
Other Employee Benefits you may be required, or choose, to pay, can include:
One of the tax advantageous retirement savings plans is known as a 401(k). Under this plan you would pay a percentage of each paycheck into your employee’s retirement savings account instead of directly to them.
Employers must offer affordable health insurance that provides minimum value of 95% to full time employees (working 30hrs or more a week) and their children (until they turn 26).
Stock and Stock Options
Stock and stock options can be offered as a form of equity compensation.