Social security, retirement, and senior citizen medical care (“Medicare”) taxes are paid equally by employers and employees. The social security tax paid by the employer and employee is currently at a rate of 6.2%, applied on earnings up to $127,200. The Medicare tax paid by the employer and employee is currently at a rate of 1.45% with no limitation. The U.S. federal and state governments also apply unemployment tax to employers. The federal unemployment tax rate is 6% on earnings up to $7,000 per employee. State rates vary.
U.S. businesses can employ non-U.S. personnel without restriction. The impact such employment may have depends
on the physical location of the foreign personnel’s activities and their residency.
Non-U.S. individuals who perform services in the United States may be subject to the same legal and tax requirements as U.S. individuals if they are deemed to be U.S. residents (see above section on Personal Income Tax). Salaries and wages paid to non-resident aliens who perform services in the United States are subject to U.S. federal income tax as FDAP. State income taxes, unemployment taxes, and other payroll taxes may apply for employment of non-resident aliens operating in the United States. Social security and Medicare taxes may not apply to employment of non-resident aliens operating in the United States if the non-resident alien is eligible for exemption from U.S. social security and Medicare under a totalization agreement between the United States and the nonresident alien’s home country.
Employment of a non-resident alien who operates outside the United States is generally not subject to U.S. federal, state, and local income taxes, social security and Medicare taxes, unemployment taxes, or payroll taxes. However, U.S. companies who employ individuals that operate outside the United States may create a permanent establishment in the location of the foreign personnel and therefore may be subject to tax in that other country.
Employers in the United States generally offer employees health insurance coverage through a private health insurer, which is paid for partially by the employer and partially by the employee. Businesses that employ 50 or more people are required to offer such health insurance to full-time employees or face a tax penalty. Individuals who are not enrolled in an employer-sponsored health plan are required to obtain health insurance individually.
Employers in the United States are subject to a number of payroll taxes including social security, Medicare, federal unemployment, state unemployment, worker compensation insurance, etc. It is common for companies of any size to engage a third-party service provider that specializes in payroll to administer its payroll and ensure compliance with the various federal and state laws.