USA Global Payroll & Tax Information Guide

July 17, 2020 | 5 Mins Yana Todorova

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Payroll in the U.S. – 2022 Updates

Employers will continue to grapple with the coronavirus pandemic in 2022. Here are seven legal trends for the new year:

    • Employer policies on booster shots
    • Return to the workplace
    • Off-the-clock work
    • Overtime rule revision
    • Patchwork of paid leave laws
    • Emphasis on enforcing non solicitation clauses
    • More litigation over choice of law

Read more about what’s new in 2022 and the laws and regulations taking effect in the U.S. here.

Basic Facts about Payroll in the U.S.

All employers within the U.S. borders must register their business to receive an Employer Identification Number with the IRS. There are many different taxes that anyone doing business in the U.S. must pay and/or withhold from an employee’s paycheck. These include:

    • Corporate taxes
    • Income taxes
    • Social Security
    • Medicare
    • Sales taxes
    • Payroll and withholding taxes
    • Unemployment
    • Workers Compensation

Further, some taxes are state taxes, and some taxes are federal taxes. Income taxes are taken on both the state and federal level (in most cases).

Because of the number of different taxes that employers must pay and/or withhold, a great majority of small, medium, and large business owners hire a payroll company to help them remain compliant with regards to payroll taxes.

Taxes

As noted above, there are anywhere from 6 to 8 (or more) different kinds of taxes that employers must pay or withhold for their payroll employees. All payroll employees are required to complete a W-4 form for their employer. The information provided on a W-4 indicates how much in state and federal income taxes that employer must withhold from the employee’s paycheck.

Rates and Thresholds

State tax rates vary state to state. Federal taxes break down according to the tax rate chart below. Federal tax rates range from 10-37% depending upon the employee’s income. Both social security and Medicare taxes are split between the employee and the employer. In 2022, the Social Security tax rate is 6.2% for the employer and 6.2% for the employee.

The 2022 tax brackets for single filers

​Taxable income

Tax rate

0 – $10,275

10%

$10,275 – $41,775

12%

$41,775 – $89,075

22%

$89,075 – $170,050

24%

$170,050 – $215,950

32%

$215,950 – $539,900

35%

$539,900 +

37%

The 2022 tax brackets for married couples filing jointly

​Taxable income

Tax rate

0 – $20,550

10%

$20,550 – $83,550

12%

$83,550 – $178,150

22%

$178,150 – $340,100

24%

$340,100 – $431,900

32%

$431,900 – $647,850

35%

$647,850 +

37%

It should be kept in mind that these 2022 adjustments will generally apply to the tax returns that are actually filed in 2023. That’s when the returns are sent off for the 2022 tax year.

How Withholding Works

Employers must deduct federal, state, social security, and Medicare taxes according to the employee’s information provided in their W-4. At the end of the year, whatever taxes should have been paid that were not withheld by the employer (even though the employer followed the information in the W-4) are the employee’s responsibility.

Returns and Remittance

At the end of the year (December 31), employers should provide each employee with a W-2 statement indicating the total amount of taxes withheld from their paycheck that year. When the employee files their taxes no later than April 15, they are responsible for any taxes owed beyond what was withheld.

If the W-4 information was accurate, the employee should not owe any taxes. In many cases, however, the employee may have failed to claim deductions for which they qualified on their W-4, resulting in them overpaying taxes that year. After filing their taxes, the federal and state governments issue refunds in the amount paid above what that employee was required to pay.

Employee Stock/Share Plans

While employers are not required to do so, many choose to offer employees a variety of stock options or shares in the company. A common benefit offered by employers is withholding a percentage of earnings to stow into a company 401k or retirement program.

Penalties

Failing to withhold taxes according to an employee’s W-4 form means that the employer is subject to fines and penalties. Obviously, intentionally incorrect tax payments related to corporate, payroll, withholding, or income tax could result in felony charges, including tax fraud. As mentioned above, the American tax code is complicated. Therefore, businesses operating in the U.S. should seriously consider working with a reputable payroll company.

Compensation and Benefits

When it comes to wages and benefits, employers should consult both federal and state guidelines. Whichever requirements benefit the employee most should be upheld.

Minimum Wage

The federal minimum wage is $7.25 an hour. However, each state may have its own minimum wage requirements for hourly employees. The law declares that whichever minimum (federal or state) is highest must be paid to that employee.

Overtime

Hourly employees working overtime must be paid 1.5 times their normal hourly rate. There are exempt (usually salaried employees) and non-exempt employees. Non-exempt employees are entitled to overtime pay when their hours exceed 40 hours within a workweek. Working on holidays or weekends do not necessarily require employers to pay overtime unless those hours exceed a normal 40-hour workweek. Different states may have different requirements regarding overtime pay. Additionally, many employers may incentivize certain work hours with overtime or double pay if they wish.

Hours of Work

There are no set federal limits on hours worked, so long as non-exempt employees are paid 1.5 times their normal rate on any hours worked over 40 in a week. State labor laws may set maximum work hours, but that is unlikely in most states.

Holiday & Sick Leave

While federal laws do not require employers to offer their employees paid leave for any reason, most states require paid leave under certain circumstances. Further, to acquire and retain top talent, most employers are going to provide a certain amount paid leave to their employees.

How Employees File Taxes at the End of the Year

All U.S. employees are required to file their own taxes at the end of the year. The employer issues them a W-2 form that shows exactly how much taxes were withheld for the year. If the employee underpaid, they are solely responsible to pay the remaining balance. All U.S. employees must file their taxes (either personally or with the help of an enrolled agent or accountant) by April 15.

In many cases, employees overpaid taxes, had another child, or invested in property during the year. After taking into account all paid taxes and tax credits, the federal and state tax agencies send tax refunds directly to the employee.

Foreign Hires

Immigrants and foreigners may secure the proper work visas to work inside the U.S. legally. Foreign employees that desire to reside permanently in the U.S. must secure what is known as a Green Card Visa.

For non-immigrant work visas, employers must make a formal job offer and sponsor that employee for the appropriate work visa based on their job description and industry. For legal foreign workers, employers must demonstrate that that employee possesses knowledge or skills that cannot be otherwise reasonably attained.

 

For more information about how our Global Payroll Control Platform integrates with local payroll providers in the U.S., contact us today.

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