Employer Identification Numbers (EINs) for Non-US Residents
Introduction
Hiring employees in the United States as a foreign company involves navigating a complex web of federal and state laws, tax regulations, and administrative requirements. This guide provides a step-by-step roadmap for foreign employers to legally hire U.S.-based employees, ensuring compliance with immigration, tax, and labor laws. It covers verifying work authorization (Form I-9), obtaining a Social Security Number (SSN), registering for federal and state taxes (including FUTA and SUTA), setting up payroll, issuing tax forms, and reporting new hires. The guide is designed for first-time readers, with clear explanations of terms and processes, practical examples, and a final analysis to contextualize the topic.
1. Verify Work Authorization with Form I-9
What is Form I-9?
Form I-9 is a mandatory document required by the U.S. Citizenship and Immigration Services (USCIS) to verify that an employee is legally authorized to work in the United States. It applies to all employees hired in the U.S., including U.S. citizens, permanent residents, and non-citizens with work visas (e.g., H-1B, L-1).
Why is it Important?
- Ensures compliance with U.S. immigration laws.
- Protects employers from penalties for hiring unauthorized workers, which can include fines or legal action from Immigration and Customs Enforcement (ICE).
Process
- Employee Completes Section 1 (on or before their first day of work):
- Provides personal information: full name, address, date of birth, and, if available, Social Security Number (SSN).
- Indicates work authorization status (e.g., U.S. citizen, lawful permanent resident, or non-citizen authorized to work with a visa).
- Signs to certify the accuracy of the information.
- Employer Completes Section 2 (within 3 business days of hire):
- Reviews original documents provided by the employee to verify identity and work authorization. Acceptable documents include:
- List A (proves both identity and authorization): U.S. passport, Permanent Resident Card, or work visa with I-94 Arrival/Departure Record.
- List B + List C (one for identity, one for authorization): Driver’s license (List B) + Social Security card (List C).
- Records document details (e.g., passport number, visa type, expiration date) on the form.
- Signs to certify that the documents appear genuine.
- Reviews original documents provided by the employee to verify identity and work authorization. Acceptable documents include:
- Retention:
- Keep Form I-9 on file for at least 3 years after the hire date or 1 year after employment ends, whichever is longer.
- Do not submit Form I-9 to the government; retain it for potential USCIS or ICE audits.
Key Notes
- Use the latest Form I-9 version, available at USCIS I-9 Central.
- Avoid discrimination by accepting any valid documents from the USCIS List of Acceptable Documents, as enforced by the Department of Justice’s Immigrant and Employee Rights Section (IER).
- Some states require using E-Verify, a free USCIS web-based system, to confirm employment eligibility (e.g., Arizona, Georgia).
Outcome
Completing Form I-9 ensures the employee is legally authorized to work, protecting the employer from immigration-related penalties.
2. Obtain a Social Security Number (SSN)
What is an SSN?
A Social Security Number (SSN) is a unique 9-digit identifier issued by the Social Security Administration (SSA) to track individuals for tax, Social Security, and Medicare purposes. Employees need an SSN for payroll and tax reporting.
Why is it Important?
- Required for employers to withhold federal and state income taxes and report wages to the IRS and state agencies.
- Enables employees to access Social Security benefits and file tax returns.
Process
- Application:
- The employee applies in person at a local SSA office using Form SS-5, available at- SSA Form SS-5.
- Appointments may be required; check- www.ssa.gov for local office details.
- Required Documents:
- Valid passport.
- Work visa (e.g., H-1B, L-1) or other work authorization document.
- I-94 Arrival/Departure Record (available at – CBP I-94).
- Employment letter from the employer confirming the job offer.
- Delivery:
- The SSN card is mailed to the employee’s U.S. address within 2–4 weeks.
- If an SSN is pending, employers can proceed with payroll using “Applied For” or zeros in electronic filings, per SSA guidance.
Key Notes
- Some non-immigrant visa holders (e.g., F-1 students, J-1 exchange visitors) may be exempt from Social Security and Medicare taxes under specific conditions, reducing payroll costs.
- If an employee cannot obtain an SSN immediately, consult SSA Employer Guidance for reporting options.
Outcome
The SSN enables accurate payroll processing and tax reporting, ensuring compliance with federal and state requirements.
3. Register for Employer Payroll Taxes
What are Payroll Taxes?
Payroll taxes are federal and state taxes withheld from employees wages and paid by employers to fund programs like Social Security, Medicare, unemployment insurance, and government operations. Employers also contribute additional taxes based on wages paid.
Why is it Important?
- Compliance with the Internal Revenue Service (IRS) and state tax agencies is mandatory to avoid penalties, audits, or legal action.
- Proper registration ensures accurate tax withholding and reporting.
Process
- Federal Registration:
- Obtain an Employer Identification Number (EIN), a 9-digit identifier for tax purposes, from the IRS.
- Apply online at- IRS EIN Application .
- Foreign employers without a U.S. entity may need to apply via Form SS-4 by mail or fax; see- IRS Instructions.
- State Payroll Tax Registration:
- Register with the state tax agency where the employee works (e.g., California’s Employment Development Department [EDD] for California hires).
- Visit state government websites (e.g.- NY Department of Taxation for New York).
- Provide business details, EIN, and estimated payroll to set up state tax accounts.
Key Notes
- Each state has unique registration processes and tax rates, check state-specific websites for guidance.
- Foreign employers without a U.S. legal entity may face complexities, such as establishing a taxable presence. Consult a U.S. tax professional or Global Professional Employer Organization (PEO) for support.
Outcome
Registration enables legal withholding and payment of federal and state payroll taxes, ensuring compliance.
4. Set Up Payroll and Tax Withholding
What is Payroll Setup?
Payroll setup involves creating a system to pay employees, withhold required taxes, and remit those taxes to federal and state agencies. It includes calculating wages, taxes, and employer contributions.
Why is it Important?
- Ensures employees are paid accurately and on time.
- Complies with federal and state tax laws, avoiding penalties for incorrect withholding or late filings.
Payroll Setup Options
- Manual Calculation:
- Calculate federal and state income taxes, Social Security, and Medicare withholdings using IRS and state tax tables.
- Suitable for small businesses with few employees but requires expertise to avoid errors.
- Payroll Service Provider:
- Use a third-party provider (e.g., ADP, Gusto, Paychex) to automate tax calculations, filings, and payments.
- Ideal for foreign employers unfamiliar with U.S. tax rules, though it involves a cost.
Tax Obligations
- Federal Taxes:
- Federal Income Tax: Withheld from employee wages based on Form W-4 settings (see Step 5).
- Social Security and Medicare (FICA): Employee contributes 6.2% for Social Security (up to a wage cap) and 1.45% for Medicare, employer matches these amounts.
- Federal Unemployment Tax Act (FUTA):
- What is FUTA? A federal tax paid by employers to fund unemployment benefits for workers who lose their jobs.
- Rate: 6% on the first $7,000 of each employee’s annual wages, with credits up to 5.4% for state unemployment tax payments, reducing the effective rate to 0.6% in most cases.
- Where Does FUTA Apply? Applies to employers in all 50 states, the District of Columbia, Puerto Rico, and the U.S. Virgin Islands who meet one of these criteria:
- Paid wages of $1,500 or more in any calendar quarter, or
- Had at least one employee for any part of a day in 20 or more weeks in a year.
- Filing: Report annually via Form 940, due January 31, at IRS Form 940.
- State Taxes:
- State Income Tax: Withheld in states with income tax (e.g., California, New York; Texas and Florida have no state income tax).
- State Unemployment Tax Act (SUTA):
- What is SUTA? A state tax paid by employers to fund state unemployment insurance programs.
- Rate: Varies by state (e.g., 0.1%–5.4% in California, 0.5%–7.5% in New York) and employer experience (new employers often pay higher rates).
- Where Does SUTA Apply? Applies in all 50 states and the District of Columbia, with each state setting its own wage base (e.g., $7,000 in California, $11,700 in New York) and eligibility criteria (similar to FUTA but state-specific).
- Filing: Typically quarterly, check state tax agency websites (e.g., Employment Development Department | California for California).
- Workers’ Compensation Insurance:
- Mandatory in most states to cover workplace injuries.
- Obtain through private insurers or state programs; requirements vary (e.g., NY Workers’ Compensation Board).
Key Notes
- Non-resident aliens (e.g., H-1B workers) may be subject to special withholding rules or tax treaty exemptions, see IRS Taxation of Nonresident Aliens.
- File Form 941 quarterly to report federal withholdings, due April 30, July 31, October 31, and January 31, at IRS Form 941.
- Ensure compliance with state-specific minimum wage and overtime laws, enforced by the U.S. Department of Labor (DOL).
Outcome
A compliant payroll system ensures accurate tax withholding, timely payments, and adherence to federal and state laws.
5. Issue Employee Tax Forms
What are Employee Tax Forms?
Tax forms document employee wages, withheld taxes, and employer contributions, ensuring compliance with IRS and state reporting requirements.
Why is it Important?
- Enables employees to file personal tax returns.
- Ensures employers report payroll taxes accurately to avoid IRS or state penalties.
Required Forms
- Form W-4 (Employee’s Withholding Certificate):
- Completed by the employee at hire to determine federal income tax withholding based on income, dependents, and tax status.
- Available at IRS Form W-4.
- Form W-2 (Wage and Tax Statement):
- Issued to employees and the IRS by January 31 each year.
- Reports annual wages, federal and state taxes withheld, and FICA contributions.
- Available at IRS Form W-2.
- Form 941 (Quarterly Federal Tax Return):
- Filed quarterly to report withheld federal income taxes, Social Security, and Medicare taxes.
- Due April 30, July 31, October 31, and January 31.
- Form 940 (FUTA Tax Return):
- Filed annually to report federal unemployment taxes, due January 31.
- Form 1042-S (Foreign Person’s U.S. Source Income):
- Required for non-resident aliens with wages exempt under tax treaties.
- Issued by March 15 annually; see IRS Form 1042-S.
Key Notes
- Ensure state-specific tax forms (e.g., California DE 9 for quarterly SUTA reporting) are filed as required.
- Use payroll software or providers to automate form issuance and filing for accuracy.
Outcome
Issuing and filing tax forms ensures compliance with IRS and state reporting requirements, supporting employee tax obligations.
6. Report New Hires
What is New Hire Reporting?
Employers must report new employees to state agencies within 20 days of hire to support child support enforcement, unemployment insurance, and other programs.
Why is it Important?
- Mandatory in all states, with penalties for non-compliance (e.g., fines up to $25 per violation in California).
- Helps state agencies track employment for legal and administrative purposes.
Process
- Submit employee details (name, SSN, address, hire date, employer EIN) to the state’s new hire reporting agency.
- Find state-specific agencies via the U.S. Department of Health and Human Services- Office of Child Support Enforcement.
- Use online portals, mail, or fax as specified by the state (e.g. – CA New Hire Reporting for California).
Outcome
Timely new hire reporting ensures compliance with state regulations and supports administrative processes.
Summary Checklist
| Step | Action Item | Where to Apply |
|---|---|---|
| Verify Work Authorization | Complete Form I-9 | USCIS I-9 Form |
| Obtain SSN | Employee applies at SSA office | SSA Form SS-5 |
| Register for Employer Taxes | Obtain EIN, register for state payroll taxes | IRS EIN Application, State tax agency |
| Set Up Payroll | Withhold federal (FUTA, FICA) and state (SUTA, income) taxes | Payroll provider or manual setup |
| Issue Tax Forms | Provide W-4, W-2; file 941, 940, 1042-S | IRS Forms |
| Report New Hire | Report within 20 days | State New Hire Reporting |
Conclusion
Hiring U.S. employees as a foreign employer is a rewarding but complex process requiring careful compliance with immigration, tax, and labor laws. By verifying work authorization (Form I-9), obtaining an SSN, registering for federal (EIN, FUTA) and state (SUTA, income tax) taxes, setting up payroll, issuing tax forms (W-4, W-2, 941, 940, 1042-S), and reporting new hires, employers can operate legally and efficiently. The process involves challenges like navigating state variations, visa sponsorship, and tax treaties, but solutions like PEOs, payroll providers, and expert consultation simplify compliance. For further assistance, visit: