The Differences in Payroll Taxing in the UK and US
Author: Jack Wimbledon
International companies often face a problem in the payroll department: Payroll taxing differs greatly from country to country, making complying with tax laws difficult for global corporations. Understanding the differences in payroll taxing in the countries in which a company operates can be beneficial for the payroll department, but software is almost always necessary for a global corporation.
Payroll taxing in the UK
In the United Kingdom, the pay as you earn (PAYE) system is used for withholding taxes from employee pay packets. The amount withheld varies according to how much an employee makes throughout the year, and PAYE does not apply to individuals earning below a certain amount of money per year. Taxes withheld by the employer must be remitted to Her Majesty’s Revenue and Customs (HMRC) on a monthly basis.
Not only is the income that a company directly pays to its employees taxable, but benefits may be taxable as well. As with income, taxes must be withheld on these benefits and remitted to HMRC on a monthly basis. Information on which benefits are taxable can be obtained through HMRC.
Payroll taxing in the US
In the United States, payroll taxes are assessed by the federal government and individual states, as well as some cities. This makes the payroll taxing process more complicated than that of the United Kingdom, and the different categories of payroll taxing in the United States must be examined individually.
Federal Payroll Taxing
Income taxes are withheld from an employee’s earnings by their employer according to their rate of pay. Determining the exact rate of withholding is done using the employee’s pay rate along with information reported on form W-4 regarding their tax status.
In addition to income taxes, social security and Medicare withholding is required. Employers pay half of these taxes directly, and withhold the other half from the employee’s pay check.
A percentage of an employee’s income will also be withheld for unemployment taxes.
State Payroll Taxing
As with federal taxes, states require payroll taxes including income and unemployment taxes. Some states also require a withholding for disability insurance.
Municipal Payroll Taxing
Some cities require that employers withhold local income taxes. This varies widely from city to city, and many do not impose any income tax at all.
Payroll Software
Running an international company can make payroll taxing a complicated process. Payroll software eases this process, allowing one company to comply with the different payroll taxing requirements of the countries in which they operate.
Software packages often offer the capability to add payroll from many different countries if a company has operations outside the UK or US. Instead of requiring employees to be completely knowledgeable in the complex payroll taxing laws of several different countries, software allows a company to completely comply with these laws while minimising the possibility of human error.
It is advisable for companies operating both in the United Kingdom and the United States to use a payroll software package to avoid the negative consequences of insufficient or inaccurate payroll tax reporting and payment.
Random Posts
Posted in Business News