U.S. Payroll

Payroll could include the costs of compensating employees, including gross pay, withholdings, and payroll taxes. This section highlights key aspects of payroll-related activity that may affect foreign businesses. Let’s examine them in detail.

Federal Payroll Taxes

Foreign entities with employees in the U.S. should comply with federal payroll taxes. They are required to withhold income taxes from their U.S.-based employees and remit them to the appropriate authorities.  In doing so, they should abide by the following taxes:

Federal unemployment tax (FUTA)

The Federal Unemployment Tax Act (FUTA) is a federal law that imposes a tax to fund benefits for individuals who lose their jobs.

The FUTA tax is calculated as a percentage of an employee’s wages. As of 2024, the FUTA tax rate is set at 6.0%. However, employers are only required to pay FUTA taxes on wages up to a certain threshold, which is $7,000 per employee. For more detailed information, please refer to the IRS website or contact Arora Law P.C. for a specific analysis of your situation.

Federal Insurance Contributions Act (FICA)

The Federal Insurance Contributions Act (FICA) primarily funds Social Security and Medicare. Both employers and employees contribute to these programs based on a percentage of wages. The total FICA tax is typically divided equally between the employer and the employee, with the employer responsible for their portion and withholding the employee’s share for submission to the appropriate authority.

Here’s a breakdown of the FICA contribution percentages:

• Social Security Tax: Employees and employers each pay 6.2% of wages up to a specific wage limit (which is adjusted annually).
• Medicare Tax: Both employees and employers contribute 1.45% of all wages, with no wage limit.