United States of AmericaTax Obligations Detailed

As an employer in the U.S., you have various federal, state, and local tax obligations regarding your employees' wages.

Federal Taxes

• Federal Income Tax Withholding: Deduct income tax from employee paychecks based on their W-4 form. Withholding amounts depend on factors like income, filing status, and allowances. Supplemental wages (bonuses, commissions) over $1 million are subject to mandatory 37% flat rate withholding. A 22% flat rate is optional for supplemental wages up to $1 million.
• FICA Taxes (Social Security and Medicare):
  • Social Security: Both employer and employee contribute 6.2% of wages up to the 2025 wage base of $176,100, resulting in a maximum employee contribution of $10,918.20.
  • Medicare: Both employer and employee contribute 1.45% of all wages. An additional 0.9% Medicare tax is withheld from employee wages exceeding $200,000.
• Federal Unemployment Tax Act (FUTA): Employers pay FUTA tax on the first $7,000 of each employee's wages. The FUTA rate is 6%, though a credit of up to 5.4% is available for timely state unemployment tax payments, making the effective FUTA rate 0.6%.
• Household Employment Taxes: If you pay a domestic worker $2,800 or more in cash wages during 2025, you are required to withhold and pay FICA taxes. Additionally, FUTA applies if cash wages exceed $1,000 in any calendar quarter. These are reported on Schedule H (Form 1040) of your personal tax return.

State and Local Taxes

• State Income Tax: Most states impose income tax. Rates and rules vary by state.
• State Unemployment Tax (SUTA): Employers are generally required to pay SUTA taxes, which fund state unemployment benefits. Rates, wage bases, and requirements differ by state.
• Local Taxes: Some cities and localities impose additional payroll taxes, such as local income or occupational taxes.

Reporting and Filing Requirements

• Form W-2: Report annual wages and withholdings to employees by January 31, 2025. File Copy A with the Social Security Administration (SSA) by the same date.
• Form 1099-NEC: Report non-employee compensation (payments to independent contractors of $600 or more) by January 31, 2025. Other 1099 forms (MISC, INT, DIV) have varying thresholds and deadlines.
• Form 941: Report federal income tax withholding, and both employer and employee shares of social security and Medicare taxes, on a quarterly basis.
• Form 940: File annually to report and pay FUTA tax.

Other Important Information

• Tax Depositing: Employers must deposit withheld federal income tax, social security, and Medicare taxes, either semi-weekly or monthly, depending on the amount of tax liability.

Note: This information is current as of February 5, 2025. Tax laws and regulations can change, so stay updated on the latest requirements.

In the United States, employers are responsible for withholding various taxes from employee wages, including federal income tax, Social Security tax, Medicare tax, and potentially state and local taxes.

Federal Income Tax

Federal income tax is determined by the employee's W-4 form, which indicates their filing status and withholding allowances. The amount withheld depends on the employee's earnings and the W-4 elections.

Social Security and Medicare Taxes (FICA)

• Social Security Tax: For 2025, the Social Security tax rate is 6.2% for both the employee and employer, applied to the first $176,100 of wages. This results in a maximum employee contribution of $10,918.20.
• Medicare Tax: The Medicare tax rate is 1.45% for both employee and employer, with no wage base limit.
• Additional Medicare Tax: An additional 0.9% Medicare tax applies to employee wages exceeding $200,000 in a calendar year. There is no employer portion for this additional tax.

Federal Unemployment Tax (FUTA)

FUTA is paid by the employer only, at a rate of 0.6% on the first $7,000 of each employee's wages.

State and Local Taxes

Many states and localities impose income taxes, which employers are responsible for withholding. The rates and rules vary by jurisdiction.

Estimated Taxes

Individuals with income not subject to withholding, such as self-employment income, may be required to pay estimated taxes quarterly. For 2025, the due dates are April 15, June 15, September 15, and January 15, 2026. Penalties may apply for underpayment.

Standard Deduction

For the 2025 tax year, the standard deduction amounts are:

• Single filers: $15,000
• Married filing jointly: $30,000
• Head of household: $22,500

An additional standard deduction is available for individuals over 65 or blind.

Other Deductions

Taxpayers can itemize deductions instead of taking the standard deduction if their itemized deductions exceed the standard deduction amount. Common itemized deductions include:

• Qualified residence interest
• State and local taxes (capped at $10,000)
• Medical expenses exceeding 7.5% of adjusted gross income
• Charitable contributions

Tax Filing Deadline

The deadline for filing 2024 tax returns is April 15, 2025. A six-month extension can be requested, pushing the deadline to October 15, 2025.

Remember, this information is current as of February 5, 2025, and is subject to change. Consult a tax professional for personalized advice.

The United States does not have a national Value-Added Tax (VAT) or Goods and Services Tax (GST). Instead, sales and use taxes are levied at the state and local levels.

Sales Tax

• Rates: Vary by state and locality, ranging from 0% in states without sales tax (Alaska, Delaware, Montana, New Hampshire, and Oregon), up to over 10% when combined with local rates. As of today, February 5, 2025, the highest combined rates are generally between 9-10%, while the lowest can be as low as 1-2%. This is subject to change based on state and local laws.
• Tax Base: Generally applies to the retail sale of tangible personal property and some specified services. Digital goods are increasingly being included in the tax base.
• Exemptions: Vary widely by state but may include groceries, prescription drugs, clothing, and certain raw materials.
• Nexus: Businesses must collect sales tax in states where they have "nexus"—a physical presence or sufficient economic activity within the state. Economic nexus thresholds are generally based on sales revenue or number of transactions, though some states have eliminated transaction thresholds as of 2025.

Use Tax

• Purpose: Complementary tax to sales tax, intended to capture tax on purchases made from out-of-state sellers where sales tax was not collected.
• Responsibility: Paid directly by the consumer to the state.

Administration and Compliance

• Administered: At the state level.
• Registration: Businesses with nexus must register with each relevant state to obtain a sales tax permit.
• Filing Frequency: Varies by state and may be monthly, quarterly, or annually, based on sales volume.
• Deadlines: Vary by state but are generally due the following month after the reporting period.

Other Indirect Taxes

• States and localities may impose other indirect taxes such as property taxes, excise taxes, business license fees, and unclaimed property reporting requirements. These vary significantly by jurisdiction.

Potential National Sales Tax

• Proposals for a national sales tax have been put forward (e.g., the Fair Tax Act) but have not been enacted. As of February 5, 2025, no national sales tax exists in the United States. This information is time-sensitive and may change in the future.

It's crucial to consult with a tax advisor or each state's department of revenue for the most accurate and up-to-date information. Tax laws are complex and can change periodically, so staying informed is critical.

This summary covers available tax incentives for the 2025 tax year in the United States. As of today, February 5, 2025, this information is believed to be accurate but might be subject to changes.

Credits for Individuals

• Saver's Credit: This credit helps offset contributions to retirement accounts. Maximum contributions eligible for the credit are $2,000 ($4,000 for joint filers), with a maximum credit of $1,000 ($2,000 for joint filers). Income limits apply. Eligibility criteria include being 18 or older, not a full-time student, and not claimed as a dependent.

• Earned Income Tax Credit (EITC): The EITC is for low-to-moderate-income workers. The maximum credit amount varies based on the number of qualifying children. Credit amounts are up to $8,046 for three or more children. Specific income limits and thresholds are outlined by the IRS.

• Adoption Credit: This credit assists with adoption expenses. For adoptions in 2025, the credit is up to $17,280. Income limitations begin phasing out the credit at $259,190 and eliminate it completely at $299,190.

• American Opportunity Tax Credit (AOTC): This credit is for qualified education expenses for the first four years of higher education. It covers 100% of the first $2,000 and 25% of the next $2,000, for a maximum annual credit of $2,500. Up to $1,000 can be refunded.

• Child Tax Credit: The Child Tax Credit provides a credit for qualifying children. Eligibility requirements include the child being a U.S. citizen, national, or resident alien with a valid Social Security number. Income limits apply.

• Energy Efficiency Home Improvement Credit: This credit encourages energy-efficient home upgrades like heat pumps, insulation, and energy-efficient windows. The maximum annual credit is 30% of project costs, capped at $3,200, with limits of $2,000 for heat pumps and $1,200 for other qualified improvements. Specific requirements apply.

Exclusions and Deductions

• Foreign Earned Income Exclusion: This exclusion allows eligible taxpayers to exclude up to $130,000 of foreign earned income from their gross income.

• Estate Tax Exclusion: Estates of decedents who die in 2025 have a basic exclusion amount of $13,990,000. This reduces the amount of the estate subject to federal estate tax.

• Annual Gift Tax Exclusion: This exclusion allows individuals to gift up to $19,000 per recipient per year without incurring gift tax.

Other Incentives and Information

• Work Opportunity Tax Credit (WOTC): Available through 2025, this credit incentivizes employers to hire individuals from specific target groups, such as veterans and those receiving public assistance. It is worth 25% to 40% of qualified first-year wages up to $6,000.

• Free Tax Filing Options: IRS Free File and other programs offer free tax preparation services to eligible taxpayers. IRS Free File Guided Tax Software is available for those with incomes up to $84,000.

• State Tax Incentives: Additional tax credits might be available at the state level. For example, Maryland offers a Homeowners' Property Tax Credit based on income. Check your state's tax website for details.

It is recommended to consult a tax professional or refer to the IRS website for detailed information on eligibility criteria, specific credit amounts, and application procedures for all tax incentives.