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SALARY PAYMENT IN United States Dollar (USD, $)
CONTRACT LANGUAGES English
PAYROLL TAX Varies per state
PAYROLL CYCLE Bi-weekly or weekly
TIME TO HIRE 12 hours
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As employers in the US most commonly have an incorporated structure, most are required to pay corporate income tax. In the United States, corporate income taxes are levied at both the federal and state level.
Federal corporate income tax is currently fixed at 21%. While there has been discussion of increasing that rate to 28%, this is yet to occur.
Forty-four states and the District of Columbia collect corporate income tax with rates ranging from 2.5% to 11.5%.
Ohio, Nevada, South Dakota, Texas, Washington, and Wyoming do not levy corporate income tax, with corporations in these states only paying the federal tax rate of 21%.
According to the OECD, the average tax rate for a single employee in the United States is 28.4%. Note this tax burden includes individual income tax and the federal and state levels, as well as compulsory social contributions.
In order to ensure that tax withheld is accurate, employees need to submit a W4 form to their employer, and employers need to submit a W2 tax form to the IRS. This ensures that the IRS has all the information it requires. Note, generally, companies do not withhold income tax from independent contractors, who instead submit their own 1099 documentation.
Federal personal income tax in the United States follows a progressive system, with income tax rates levied via seven marginal tax brackets.
| Taxable Income (USD) | Tax rate 2023 |
|---|---|
| $0 – $10,275 | 10% |
| $10,276 – $41,775 | 12% |
| $41,776 – $89,075 | 22% |
| $89,076 – $170,050 | 24% |
| $170,051 – $215,950 | 32% |
| $215,951 – $539,900 | 35% |
| $539,901+ | 37% |
State income tax rates vary. Forty-one states and the District of Columbia levy personal income taxes, whilst two states (New Hampshire & Tennessee) only tax income resulting from dividends and interest. The remaining seven states do not tax any personal income.
In the USA, employers are required to contribute to a number of payroll taxes under the Federal Insurance Contributions Act (FICA) and Federal Unemployment Taxation Act (FUTA). FICA includes Social Security payments and Medicare coverage.
Employer social security contributions total 6.20% on the first $160,200 of wages paid. Employer Medicare contributions are 1.45% with no earnings limit.
FUTA funds the federal unemployment program. Employer contributions total 6% of the first $7,000 of an employee’s wages. A credit reduction (for eligible employers) can bring the FUTA contribution down to 0.6%.
Total employer payroll contributions are a minimum of 8.25%.
As well as the federal payroll taxes, many states and some municipalities impose additional payroll taxes to cover programs such as short-term disability or paid family medical leave.
It is the law of the employee’s state of residence that governs employment agreements. State payroll taxes are therefore paid to the employee’s state of residence.
Employees match the contributions of their employer under the FICA. This includes 6.20% for social security and 1.45% for Medicare contributions. There is an additional Medicare Tax of 0.9% for employees who receive wages over $200,000.
Employees do not have to pay the FUTA.
Your business can easily hire employees in USA without opening a local entity. We handle local employment law, complex tax regulations, and international payroll in 180+ countries worldwide. All you need to do is focus on your business.
The Internal Revenue Service (IRS).
Yes. Employers pay federal payroll taxes under the FICA & FUTA. Together, these federal payroll taxes amount to a minimum employer contribution of 8.25%.
Federal payroll taxes are paid online using the Electronic Federal Tax Payment System – a free system provided by the U.S. Department of Treasury.
USA – Individual Income Tax
