A number of federal, state and local laws regulate employment relationships in the USA imposing different level of obligation on employers. As they all must be complied with, in case of legal disputes, companies will usually have to adhere to the legislation that is more favourable to employees. This also makes it difficult for employers to identify and follow the right employment regulations. In addition to this, Americans are well known for being extremely litigious, especially in the matters related to their employment.
Payroll and taxation in the USA primarily depend on the state your company is going to be incorporated and conduct its business operations in. There are numerous taxes, and procedures associated with them, that has to be considered by entities planning to operate in the U.S., including federal and state individual income tax for employees, Social Security and Medicare costs, payroll tax, sales tax, withholding tax, corporate tax and unemployment insurance.
Companies operating in the USA can either sponsor employees to work temporarily (under “NonImmigrant” Visa Class, such as H1B, H2B, E3, TN1 etc) or permanently in the country. Although “temporary” visas are much easier and quicker to obtain compared to permanent permits, there is still a great deal of procedures and technicalities making this process quite tedious and increasing the risk of failure.
There are certain issues associated with the incorporation in the United States, such as choosing a state to incorporate in or dealing with certain factors specific to a business. It is also important to choose a type of business entity. In general, there are three major forms available for foreign companies: Corporation, Limited Liability Company and Branch Office.
Companies entering USA must make a decision whether to use their own resources for a Do-It-Yourself (DIY) approach, or to use a Global Employment Organization to handle payroll and employment responsibilities. A GEO or USA Employer of Record solution makes it faster, easier and cheaper to deploy staff if they don’t have a USA entity established that can run payroll.
A DIY approach will typically be delayed until there is a properly incorporated entity ready to run payroll. Shield GEO can deploy foreign staff in 4-6 weeks and local staff in 48 hours. Additionally Shield GEO is responsible for all compliance issues related to the employment.
|Management Fee for Employer of Record Services / Monthly Payroll Costs||
Please contact us for a quote.
Shield GEO pays the employee on a monthly basis, typically on the last working day of the month although we can adapt to your preferred schedule. Income tax and social security (where applicable) are deducted at source and paid to the local tax authorities.
Payroll in the United States is most frequently bi-weekly (26 payments per year) although twice monthly (usually 15th and last day) is not uncommon. Monthly is rare.
|Tax Returns Supplied||
The Company is obliged to provide Form W-2 (annual earnings summary) to both the employee and the IRS by January 31 of the following year. The employee is usually obliged to prepare his own income tax return or to seek a professional tax service provider. When an employee is on expat assignment and thus subject to tax in two or more countries, it is common for the employer to pay for an accounting firm to prepare the returns.
|Corporate Tax Requirements||
In the USA corporations must file tax return by the 15th day of the third month following the end of the taxable year. Related tax has to be paid before or on the due date of the return. In certain cases, extensions are given to companies. There are some other filings that may be necessary on a quarterly or other basis. Generally, companies are required to make quarterly estimated tax payments.
|Employers Social Security and statutory contributions||
Social security taxes include old age, survivors and disability insurance (OASDI), and “hospital insurance”, which is also known as “Medicare”. The employer’s part of these taxes is deductible for income tax purposes. Self-employed workers are subject to a separate tax that is similar to the one paid by employers.
Medicare tax = 2.9% (plus the additional 0.9% Obamacare tax for wages above a specific threshold);
The OASDI tax = 12.4% (imposed on the first USD 118,500 of wages).
|Employees Social Security and statutory contributions||
See the section above.
With the recent passage of Obamacare, all U.S. taxpayers are required to carry health insurance or pay a penalty. It is customary for the employer to offer a variety of medical insurance plans to cover a portion of the cost. The employee’s portion of the premiums is customarily included in payroll deductions.
No other insurance is required by law but it is customary for employers to offer Short-Term Disability Insurance, Long-Term Disability Insurance, and Life Insurance. Premiums for these are customarily included in payroll deductions.
Medical insurance is included in statutory payroll deductions and Shield GEO can arrange private medical insurance at additional fees.
|Corporate Income Tax Rate||
There is a flat tax of 35% that applies to the taxable income of corporations that have annual taxable income equal to or greater than USD 18,333,333. Progressive tax rates, starting at 15%, apply to income of corporations with total taxable income of less than USD 18,333,333.
Employers must withhold federal income tax from employee wages and must forward the tax to the government. They also must pay federal and state unemployment tax and social security taxes.
The federal unemployment insurance rate = 6% (imposed on the first USD 7,000 of each employee’s wages). State unemployment insurance is mandatory in all 50 states and the District of Columbia and varies by state. Employers receive a credit, up to a maximum of 5.4%, against the federal tax for amounts paid to state unemployment insurance funds.
Sales tax is collected in 45 states with rates differing based on specific state. The lowest average combined rates are in Maine (5.50%),Wyoming (5.47%), Wisconsin (5.43%), Hawaii (4.35%) Alaska (1.76%). The highest average combined state sales tax rates are in Tennessee (9.45%), Arkansas (9.26%), Alabama (8.91%), Louisiana (8.91%), and Washington (8.89%). The differences in the tax rates result in consumers shopping across borders or buying products online.
Gross amount of dividends, interest and royalties are subject to a 30% withholding tax. Any other income, profit or a gain characterised as “fixed or determinable, annual or periodic” (FDAP) is also subject to this tax (the rate can be reduced under a tax treaty or if the income is ECI it is not taxable). A non-final tax is also withheld on proceeds from the disposal of US real property interests (10%) and by partnerships on their ECI that is being allocated to foreign corporate partners (35%).
There is a variety of excise taxes. Apart from this, local governments, the 50 states and the District of Columbia impose various income, franchise, license, stamp, estate, property and other taxes.
The U.S. also have unified estate and gift tax for citizens and residents, which is generally based on the net assets of the donor/deceased in excess of USD 5,430,000 (2015), and there is generally no tax imposed on donees/heirs on the appreciation of the assets in the hands of the decedent. Non-resident non-citizens, are taxed only on property situated in the United States and in excess of USD 60,000 (subject to increase by various treaties). A gift tax is imposed on gifts made during a person’s life, which is unified with the estate tax. The maximum rate for estate and gift taxes is 40%.
Individuals, estates and certain trusts must pay a 3.8% tax on net investment income over a certain threshold (USD 250,000 for married individuals filing jointly, USD 125,000 for married filing separately and USD 200,000 in other cases;USD 12,300 for estates and certain trusts). Individuals also must pay a .9% tax on wages, compensation or self-employment income that exceeds a threshold amount (USD 250,000 for married individuals that file jointly,USD 125,000 for individuals married and filing separately, USD 200,000 for single individuals).
|Work Permit cost||
Please contact us for a personalised quote.
|Work Permit processing time||
The H1B visa processing time is generally six months, L1B and J1 visas can take as little as one month (after all documents have been made available).
|Work Permit process||
There are 3 Visa types that are commonly used:
H1B. This is the most common visa, the application process starts on March 1 and needs to be filed by April 1. People who are granted an H1B can start October 1 in the USA.
L1B This is a visa especially for management or technical experts from within the group, who are seconded to the USA (within the same group of companies). Employees need to be either management or experts, and have worked for the group company for at least one year prior to being seconded to the USA. Processing time is one month if extra fees (USD 1,235) are paid.
J1 This visa is for trainee exchange programs. Some nationals (non-EU) can only stay for 18 months
|Can Work Permit be processed in country||
Yes, but not recommended.
|Switch Business Visa to Work Permit?||
No, not really as a business visa is for a person, an H1B, L1B or J1 are applied and granted to the company.