United States Payroll Guide
HR & Payroll in the United States
HR & payroll in the USA
Use this page to quickly understand the payroll basics in the United States, then dive into the federal and state details that matter for compliance.
Good to know
- Local Currency: United States Dollar (USD)
- Minimum Salary: The federal minimum wage for covered nonexempt employees is $7.25 per hour (source : U.S. Department of Labor).
- Salary Calculation: gross to net
About the USA
The United States of America is a country of 50 states. It has the world’s largest consumer market and multiple free trade agreements and tax treaties with many countries. Known for always being welcoming to new business, it is very appealing for businesses to expand their operations there. The workforce has a robust and diverse talent pool and is seen as one of the most productive and innovative in the world.
The USA may be an open ground for new businesses, but it is still essential to stay compliant with legislation and taxes. Our US payroll and HR experts will help ensure your business complies with US legislation and offer a service that is accurate and efficient.
The American system
The U.S. Social Security system consists of three branches:
- Old age and death (survivors)
- Disability benefits
- Medicare (health care for the elderly and disabled)
These risks (except for accidents at work, health insurance, and unemployment) are managed by the Social Security Administration (SSA).
Accidents at work and unemployment insurance are administered at the state level under the Department of Labor (DOL). Contribution rates and benefit amounts vary from state to state. Companies must provide workers’ compensation insurance to cover employees at work.
Social contributions in the United States
At a glance: US payroll combines federal taxes with state-specific unemployment and workers’ compensation requirements, so a compliant setup usually needs both national and local validation.
Employers and employees in the United States pay both federal and state taxes.
| Risk / tax | Employer | Employee | Annual ceiling (US$) |
|---|---|---|---|
| Federal taxes | |||
| Social Security (part of FICA)(1) | 6.20% | 6.20% | 142,800 |
| Medicare (part of FICA)(1) | 1.45% | 1.45%(2) | On the total salary |
| Federal Unemployment Tax Act (FUTA) | 6%(3) | — | — |
| State taxes | |||
| Accidents at work | The amount of the contribution varies by risk and by state. On the total salary. | ||
| State Unemployment Tax Act (SUTA) / State Unemployment Insurance (SUI) | Varies by state. | ||
(1) FICA stands for Federal Insurance Contribution Act.
(2) Individuals with incomes over $200,000 ($250,000 for married couples) pay an additional 0.9% Medicare contribution.
(3) The Federal Unemployment Tax Act is a contribution paid once a year to the federal government.
The amount of taxes due for Social Security and Medicare is set at the federal level. Unemployment insurance is set by the federal government and administered by the states, which set specific rules regarding contribution rates, benefit amounts, and how long benefits are paid. The program is almost entirely funded by taxes paid by employers. Only three states (Alaska, New Jersey, and Pennsylvania) collect taxes from employees.
In addition, Federal Unemployment Tax Act reporting is required once a year. The percentage is based on the first $7,000 paid to the employee by the employer. The minimum tax rate is 6%.
Collection
The Internal Revenue Service (IRS) is the federal tax collection agency. Each state has its own department of revenue to collect state taxes.
Taxes in the United States
The tax system
The US tax system operates at both the federal and state level. Federal and state taxes are entirely separate and are governed by their own authorities. The federal government does not interfere with state legislation and taxation.
Each state has its own tax system. Within a state, several jurisdictions may also levy taxes. Local taxes are generally used to fund local programs such as education, parks, and community programs.
Income tax withholding
Why this matters: US payroll withholding depends on both the employee’s pay level and the forms/settings used for federal and state tax treatment.
Federal income tax
For employees, withholding is the amount of federal income tax withheld from your paycheck. The amount of income tax your employer withholds from your regular pay depends on two things:
- The amount you earn.
- The information you give your employer on Form W-4 (issued by the employer on the first day at the company). This document is sent to the IRS to verify the employee’s tax status and to determine the amount to be deducted for each tax.
State income tax
Each state has its own withholding form. States also collect income tax.
Source: IRS — Tax withholding
Our HR & payroll experts are ready to help
Payroll and HR differ in each country and for each business. Trust one of our local experts to help ensure your company’s compliance in the USA.
Our payroll and HR services in the USA
- Implementation and testing of the software
- An understanding of your individual business payroll processes
- Online payslips & payments
- A dedicated payroll expert
- Data entry & processing
- Payslip distribution
- Personnel & document production
- Legislation compliance
- Highly secure