Are there social security/social insurance taxes in the United States? If so, what are the rates for employers and employees?
Social security tax (established by the Federal Insurance Contributions Act, thus also known as FICA) is imposed on both the employer and employee. FICA is assessed on wages paid for services performed as an employee within the United States regardless of the citizenship or residence of either the employee or employer. The employee portion of the tax may not be deducted in computing U.S. income tax.
FICA consists of two parts, the old-age, survivors, and disability insurance tax (OASDI), and Medicare Tax (hospital insurance part). The OASDI rate is 6.2 percent on all wages up to USD 127,200 for 2017. (The cap is adjusted annually for inflation.) The Medicare Tax rate is 1.45 percent (for the employer and the employee), imposed on all wages without a cap. An additional Medicare Tax of 0.9 percent is imposed on wages over USD 200,000 (USD 250,000 for cumulative wages of both spouses if filing jointly, or USD 125,000 for a married person filing separately). This tax is not assessed to the employer, but only to the employee.
On 2016 Wages
|Employer percent||Employee percent||Percent|
|Up to $127,200||7.65||7.65||15.3|
|$127,200 to $200,000 (Single) ($250,000 MFJ spouses combined; $125,000 MFS)||1.45||1.45||2.9|
|Over $200,000 (Single) ($250,000 MFJ spouses combined; $125,000 MFS)||1.45||2.35||3.8|
Foreign national employees may be exempt from FICA pursuant to a totalization agreement between the United States and the employee’s home country. Totalization agreements eliminate dual coverage and contributions, and provide for continued benefits eligibility (totalized benefits) for foreign nationals working in the United States for limited time periods. In addition, some non-resident visa holders (specifically, F, J, Q, and M visas) may qualify for exemption from FICA.(See the list of countries with which the United States has Social Security Totalization Agreements below.)
Social security tax is imposed on self-employed individuals under the Self-Employment Contribution Act (SECA). SECA is imposed on self-employed U.S. residents with net earnings from self employment of USD 400 or more. For 2017, self-employment income up to USD 127,200, is taxed at 15.3 percent, and self-employment income in excess of that amount is taxed at 2.9 percent. Half of the self-employment tax is deductible in computing the regular income tax. The additional 0.9-percent Medicare Tax described above also applies to self-employment income, but is not deductible for regular income tax purposes. (In determining the rate thresholds for self-employment income, the thresholds are reduced by any wages subject to FICA.)
Self-employed non-residents are not subject to SECA, except as may be provided under a totalization agreement.
The United States has a unified gift and estate tax system that applies to gifts made during life and bequests made at death. For 2017, the highest estate and gift tax rate is 40 percent.
One system of estate and gift taxation applies to U.S. citizens and to foreign citizens domiciled in the United States. A separate system applies to foreign citizens who are not domiciled in the United States. A number of treaties have been negotiated with respect to estate and gift taxes.
A U.S. citizen or U.S.-domiciled foreign citizen is subject to gift tax on the fair market value of all gifts made during his or her lifetime unless an exclusion exists. Most notably, an individual is permitted to exclude gifts of up to USD 14,000 (2017 amount, indexed for inflation) annually to each recipient. Gifts to the individual’s spouse also qualify for special treatment. All outright gifts made to a spouse who is a U.S. citizen are exempt from gift tax. In contrast, annual gifts of up to USD 149,000 (in 2017, amount indexed for inflation) to a spouse who is not a U.S. citizen are exempt from gift tax. Upon the death of a U.S. citizen or U.S.-domiciled foreign individual, his or her taxable estate is subject to estate tax. The taxable estate includes the fair market value of all of a decedent’s assets, wherever located, less certain deductions. The most important estate tax deduction is the marital deduction, which generally permits all outright transfers of property to the decedent’s spouse to be excluded from taxation, but only if the spouse is a U.S. citizen. Generally, no marital deduction is allowable for property passing outright to a spouse who is not a U.S. citizen. There is also a unified credit available that has the effect of exempting from the gift and estate tax up to USD 5,490,000 (2017 amount, indexed for inflation) of property transferred cumulatively during life or at death.
Most gifts made by non-domiciled foreign citizens (“NDFC”) are exempt from U.S. gift taxes. However, these individuals are subject to U.S. gift tax on gifts of real property and tangible personal property located within the United States. Gifts by a NDFC to his or her spouse are treated the same as gifts by U.S. citizens. Thus, gifts qualify for the unlimited marital deduction if the recipient spouse is a U.S. citizen and for the annual exclusion (USD 149,000 for 2017) if the spouse is not a U.S. citizen. The USD 14,000 annual gift exclusion per donee is allowed. The gift tax rates for NDFCs are generally the same as for gifts made by U.S. citizens and U.S.-domiciled foreign citizens, except that the unified credit amount mentioned above is not available for NDFCs.
Similarly, the taxable estate of a NDFC is limited to certain tangible and intangible property situated in the United States.
The estate tax rates that apply to the estates of NDFCs are the same rates applicable to the estates of U.S. citizens and U.S.-domiciled foreign citizens. A special unified credit is provided for NDFCs that will exempt the first USD60,000 of the U.S. taxable estate from U.S. estate tax.
Are there real estate taxes in the United States?
Yes. An individual holding real property in the United States may be subject to real estate taxes applicable in that locality. Tax rates vary from state to state, and also from locality to locality. No real estate tax is imposed at the federal level.
Are there sales and/or value-added taxes in the United States?
Yes, most states and many local jurisdictions impose sales taxes. The definition of a taxable sale or service, as well as the tax rate, varies from jurisdiction to jurisdiction. No sales tax is imposed at the federal level. There is no value-added tax in the United States.
Are there unemployment taxes in the United States?
Yes. Unemployment taxes are assessed on the employer by the federal government under the Federal Unemployment Tax Act (FUTA), as well as under most state unemployment insurance systems, which together fund compensation payments to people who have lost their jobs. FUTA tax is not deducted from the employees' wage.
Are there additional taxes in the United States that may be relevant to the general assignee? For example, customs tax, excise tax, stamp tax, etc.
A Net Investment Income Tax (NIIT) is due on unearned income, including rent, net of related expenses. The NIIT is calculated as 3.8 percent of the higher of net investment income, or the amount by which modified adjusted gross income exceeds a threshold amount of USD 200,000 (USD 250,000 for a married couple filing jointly, or USD 125,000 for a married couple filing separately). The NIIT is paid as an addition to federal income tax.
Each state and municipality in the United States has its own set of rules with respect to taxing the income of a state resident or non-resident. However, many states have adopted rules similar to those of the federal government regarding the residence status of a foreign national and the taxing of income earned within the taxing jurisdiction.
Personal property taxes may be assessed by states and localities on inventory or other personal property (such as automobiles) held in the United States.
Some states also impose death taxes with respect to certain property included in a decedent’s gross estate.
Certain U.S. citizens and long-term residents who relinquish their citizenship or give up their right to lawful permanent residence in the United States (expatriation) may be subject to an exit tax. The tax is figured as if the person had disposed of all his or her property on the day before the date of expatriation, and is imposed on gains in excess of USD 699,000 (2017 amount, indexed for inflation). Special rules apply to certain classes of property. Different rules applied for expatriations occurring before June 17, 2008.
A long-term resident is any individual, other than a citizen of the United States, who is a lawful permanent resident (that is, a greencard holder) of the United States in at least eight taxable years during the 15-year period ending on the date of the individual’s loss of lawful permanent residence status. The exit tax applies if a former citizen or long-term resident meets certain financial thresholds.
If an individual who was subject to the exit tax subsequently makes a gift or bequest to a U.S. citizen or resident, the recipient is subject to a special transfer tax on the amount received. The tax is assessed at the highest gift or estate tax rate then in effect (currently 35 percent). The transfer tax is reduced by any foreign gift or estate tax paid, and is not due if the amount is reported by the donor on a timely-filed U.S. gift or estate tax return.
Residents of the United States who are beneficiaries or grantors of foreign trusts may have reporting requirements with respect to those trusts. Failure to provide the required information can lead to substantial penalties.
U.S. residents are required to report the receipt of large gifts from foreign sources if the aggregate amount of gifts exceeds certain thresholds.
U.S. persons are required to report information regarding their interest in foreign financial accounts if the balance in all such accounts exceeds USD 10,000, on any day during the year. No tax is assessed on the account balances, but significant penalties can be assessed for non-disclosure. The report is made on FinCEN Report 114, Report of Foreign Bank and Financial Accounts, commonly referred to as the FBAR, which is due on April 15 of the following year, with a six-month extension available (the same due dates as the individual income tax return; however forms for 2015 and prior were due June 30 of the following year with no extensions). This form is not included with the federal individual income tax return; rather it must be filed electronically with the U.S. Treasury Department.
U.S. taxpayers are required to report ownership of specified foreign financial assets to the extent the total value of those assets exceeds certain threshold amounts. The threshold amounts are based on the taxpayer’s tax return filing status and whether he or she resides in the United States or abroad. This report is made on Form 8938, Statement of Specified Foreign Financial Assets, which must be attached to the U.S. income tax return. Failure to include Form 8938, if required, could lead to substantial penalties.
U.S. taxpayers who invest in a passive foreign investment company (PFIC), such as a foreign mutual fund, must report their ownership interest annually with their tax return on Form 8621, Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund. Investment in a PFIC may result in additional taxes and interest charges may be due, which are calculated on Form 8621, on which certain elections can also be made with respect to PFIC interests.
The following countries have a double taxation treaty with the United States.
* Former republic of the U.S.S.R. and member of the Commonwealth of Independent States, covered by the U.S. U.S.S.R. income tax treaty signed June 20, 1973.
The following countries have a social security totalization agreement with the United States.
KPMG LLP’s Global Mobility Services practice has offices throughout the United States. Below noted is the office for the GMS practice’s national partner-in-charge.
Ben Garfunkel, National partner-in-charge
51 John F. Kennedy Parkway
Short Hills, New Jersey
Tel. +1 (973) 912-6433
Trish Brown, Partner
345 Park Avenue
New York, New York
Tel. +1 (212) 872-6768
Cathy Mauer, Partner
1225 17th Street, Suite 800
Tel. +1 (303) 382-7684
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