I explain the key points to keep in mind when hiring human resources in the United States. During the hiring process, we need to verify that the employee is a U.S. citizen or legally eligible to work. Proper payroll and tax processing for employees is also important. Learn about federal and California payroll taxes.
Confirmation of work eligibility
When hiring an employee in the United States, it is required to verify the employee’s work eligibility to ensure the legality of their employment. You are responsible for verifying that your employees are US citizens or legal foreigners with visas. Failure to do so may subject the employer to fines. The employee presents identification and work eligibility documents and completes and signs USCIS Form I-9. The employer reviews the documentation provided by the employee, make a copy and attach it to Form I-9 and retain it. Form I-9 is not required to be submitted to USCIS but may be required for future audits and investigations. Proper record keeping is important.
Federal tax on payroll
- Federal Income Tax: Tax withheld from the employee’s salary. This is an advance payment for federal income tax. It is calculated based on the employee’s salary and payroll cycle. Calculated using IRS (Internal Revenue Service) tax tables and calculators, the appropriate tax rate is applied according to the employee’s income level. The employee must submit a Form W-4 (Employee’s Withholding Certificate) to the employer before the salary is paid. If any changes occur, the employee will submit a new completed Form W-4.
- FICA Taxes (Social Security and Medicare Taxes): FICA taxes consist of Social Security and Medicare taxes that are borne by both employers and employees. The Social Security tax rate is 12.4% (6.2% each for employees and employers) and the Medicare tax rate is 2.9% (1.45% each for employees and employers). The social security tax has an annual taxable cap of $160,200 in 2023. Medicare taxes apply without cap.
- Federal Unemployment Tax (FUTA): The Federal Unemployment Tax is a tax paid by employers. The $7,000 portion of the annual salary for each employee is taxable. The tax rate is 6%, but a 5.4% FUTA tax credit is available when employers file an annual Federal Unemployment (FUTA) tax return (Form 940). The tax rate after the FUTA tax credit is 0.6%.
California tax on payroll
- California Income Tax: Income tax is deducted directly from an employee’s paycheck through withholding, similar to federal income tax. A tax paid by California taxpayers to the state government.
- California Disability Insurance (CA SDI): A tax withheld from an employee’s salary. The SDI withholding tax rate for 2023 is 0.9%. Your employer will withhold 0.9% from your salary on the first $153,164 portion of your total salary.
- California Unemployment Tax (CA SUI): Like the federal unemployment tax, the state unemployment tax is paid by the employer. A tax that provides funds to temporarily pay benefits when an employee becomes unemployed. The tax rate for new employers is 3.4% for the first two to three years of employment. After that, the tax rate will vary depending on how much you paid in unemployment insurance benefits. The EDD (Employment Development Department) will notify you of the rate for the following year in December each year.
- California Employment Training Tax (ETT): The California Employment Training Tax provides funding to train employees in targeted industries to make California businesses more competitive. ETT paid by employers. Employers pay 0.1% of the $7,000 portion of the employee’s annual gross salary.
Statutory welfare expenses
California Workers Compensation Insurance: A workers’ compensation insurance policy provides covered employees with medical and wage replacement (compensation) benefits resulting from injuries at work. Only workplace injuries resulting from the normal course of work are covered. The California workers compensation insurance premium is calculated for each $100 of salary. 93 cents per $100 of payroll for worker’s compensation in 2023. Under California Labor Code, Division 4, Part 1, Chapter 2, Section 3352, the following workers are exempt from workers’ compensation insurance in California: Business owners/sole proprietors (aside from roofers), Independent contractors, Domestic workers who are related to their employers, Individuals who work for aid (food, housing, etc.) rather than pay, Certain volunteers, including volunteers for non-profit organizations, Deputy sheriffs and deputy clerks, Students participating in amateur sporting events/amateur sports officials.
Summary
If you want to hire people in the United States, you need to check the employee’s work eligibility and make sure they have American citizenship and legal visas.
Federal tax on payroll
Federal Income Tax: Deducted as withholding tax and requires Form W-4 filing.
FICA taxes (Social Security and Medicare taxes): paid by employers and employees.
Federal Unemployment Tax (FUTA): Taxable portion of $7,000 per employee per year, paid by the employer.
California tax on payroll
California Income Tax: Income tax is deducted at source.
California Disability Insurance (CA SDI): Withheld from employee payroll.
California Unemployment Tax (CA SUI): Employer pays, tax rate varies.
California Employment Training Tax (ETT): Paid by employer, 0.1% on $7,000 portion of annual gross pay.
Statutory welfare expenses California Workers’ Fire Compensation Insurance: Provides accident compensation benefits to covered employees. Workers Compensation insurance premium is calculated for every $100 of salary. Certain workers are exempt from workers’ compensation insurance.
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