Tax Figures
Corporate Income Tax
The corporate income tax rate in the US is 21%.
Corporate taxpayers are required to file an annual tax return (generally Form 1120) by the 15th day of the fourth month following the end of the tax year. Companies may select a tax year that is different to the calendar year.
Companies are generally required to make tax payments in 4 equal instalments throughout the year on a quarterly basis, and fully paid by the tax return due date. While extensions may be granted for filing taxes, they are generally not granted for tax payments.
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.
Income Tax Rate
- 0 – 9,700: 10%
- 9,701 – 39,475: 12%
- 39,476 – 84,200: 22%
- 84,201 – 160,725: 24%
- 160,726 – 204,100: 32%
- 204,101 – 510,300: 35%
- 510,301+: 37%
Different tax rates apply for different categories of taxpayers i.e. married taxpayers filing jointly, head-of-households taxpayers and married taxpayers filing separately.
Income Tax Deductions
Citizens and residents may be entitled to the following deductions on assessable income:
- A standard deduction amounting to USD12,200 for individuals, USD24,400 for married couples filing a joint return
- Qualified residence* interest
- State and local income taxes, sales taxes and property taxes up to USD10,000
- Medical expenses
- Casualty, disaster and theft losses
- Charitable contributions
- Childcare expenses
*Qualified residence interest is interest incurred from buying, building or improving a qualified residence, up to $1 million of home acquisition debt and $100,000 of home equity debt. Interest may be deducted from up to 2 qualified residences – a primary home and one other vacation home or similar property.
Payroll Tax
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
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.
Withholding Tax
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%).
Other Tax
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).
Time to prepare and Pay Taxes
175 Hours
Employers Social Security and statutory contributions
The Federal Insurance Contributions Act (FICA) imposes old-age, survivors, and disability insurance taxes, also known as social security taxes and Medicare taxes.
The social security tax for employers is 6.2% on the first USD132,900 of wages paid.
The Medicare rate is 1.45% for employers. Employers are also responsible for withholding an Additional Medicare Tax of 0.9% on an employee’s wages in excess of $200,000 in a calendar year.
Employees Social Security and statutory contributions
The social security tax (old-age, survivors, and disability) for employees is 6.2% on the first USD132,900 of wages paid.
The Medicare rate is 1.45% for employees. Employees also face an Additional Medicare Tax of 0.9% on their wages in excess of $200,000 in a calendar year. It is the employer’s responsibility to withhold this tax.
Employer Social Security Limits
Social security tax has a wage base limit of $132,900. There is no wage base limit for Medicare tax.
Employee Social Security Limits
Social security tax has a wage base limit of $132,900. There is no wage base limit for Medicare tax.
Payroll
There are specific rules for payroll and taxation in the USA, depending upon the state of incorporation and / or business operation. The primary concerns for a foreign company that needs to comply with tax laws in the USA are: federal and state individual income tax for employees, Social Security and Medicare costs, payroll tax, sales tax, withholding tax, corporate tax and permanent establishment concerns. There is also potential state and federal unemployment insurance that is paid by the employer, as well as workers’ compensation funds.
A US company must register for payroll tax in its state of formation. In order to comply with federal tax requirements, the company will need to obtain an Employer Identification Number (EIN). As with most other things, payroll tax is state-based, so the exact procedure will depend upon the state, and most states have income tax withholding requirements as well. For many companies using a local specialist payroll provider will simplify this process and ensure full compliance with local laws.
Remote Payroll
A remote payroll in the USA is where a foreign company, i.e. a non-resident company, payrolls a resident employee in the USA. This applies to both local and foreign employees. One option for a non-resident company to payroll its employees (local and foreign) in the USA is to use a fully outsourced service like a GEO or PEO which will employ and payroll the staff on their behalf.
Local Payroll Administration
In some cases, a company will register their business in USA under one of the forms available, but prefer to have another company administer its payroll. This can be accomplished through a payroll provider. It is important to note that the company, as the Employer of Record, is still fully responsible for compliance with employment, immigration, tax and payroll regulations. But the payroll calculations, payments and filings can all be outsourced to the payroll provider.
Internal Payroll
Larger companies with a commitment to the USA may wish to run their own local payroll for all employees, foreign and local. In order to accomplish this, they will have to complete incorporation, register the business and then hire the necessary staff. There will be a need for in country human resources personnel who have the background needed to manage a USA payroll, and can fulfill all tax, withholding, and payroll requirements.
This approach carries significant cost and requires some knowledge of local employment and payroll regulations. The company will need a local accounting firm and potentially legal counsel to ensure full compliance with USA employment laws.
Currency
The United States dollar (USD)
