Payroll in the United States of America: Employer costs, taxes & more in 2026

The United States of America payroll is a comprehensive legal and financial system that covers employee compensation in the country, along with withholding federal, state, and local taxes (which vary in the 50 US states). Payroll processing in the USA includes pay cycles, income tax, employer contributions, payroll compliance, and more. Payroll processing must adhere to the regulations of the Internal Revenue Service (IRS) and the US Department of Labor (DOL). 

Payroll management in the USA is more complex than most employers anticipate. Along with calculating the right wages and withholding federal and state income taxes, employers are responsible for contributing to Social Security and Medicare, paying federal and state unemployment taxes, and maintaining accurate payroll records.

This is a comprehensive guide on the US payroll and how an Employer of Record, such as Payoneer Workforce Management, can help simplify payroll operations in the country.

Want to know more about hiring and paying talent in the United States of America payroll? Book a demo today with Payoneer Workforce Management for seamless employment, payroll management, and compliance. 

What does US payroll include?: Wages and other payments

The United States of America payroll includes the minimum wage in the country, along with a host of other pay types such as overtime pay, sick pay, maternity and paternity pay, and severance pay, among the prominent ones. 

Before diving into US payroll processing, employers must understand how wages are structured, how employees are paid, and what rules apply to overtime and additional compensation. Here are the details: 

Payroll cycle in the USA

The USA government mandates no single payroll cycle. The Fair Labor Standards Act (FLSA) requires that wages be paid on a regular, pre-established schedule. 

According to the Department of Labor, payday requirements vary from state to state in the USA. Bi-weekly and monthly pay cycles are the most common options. Employers will have to verify the rules for each state before they pay employees in the United States of America. 

Minimum wage in the United States of America

The official federal minimum wage for employees in the USA is $7.25 per hour. 

Most states have gone higher. California, New York, and Washington all have state minimums exceeding $16 per hour as of 2026. Some cities and counties set their own local minimums on top of that. 

The rule is simple: when a state or local minimum wage is higher than the federal rate, the higher rate applies. 

The DOL maintains an updated state minimum wage table that you can use as a reference.

Overtime pay

The Fair Labor Standards Act (FLSA) contains the federal overtime provisions in the USA. Unless exempted, employees are entitled to overtime pay when they work for more than 40 hours in a week. The rate of overtime payment for an employee is one and a half times the regular rate of pay. 

Some states, like California, may have stricter rules.

Before discussing sick pay, maternity pay, and paternity pay, it is important to understand the Family and Medical Leave Act (FMLA). 

To be eligible for FMLA, employees have to fulfil certain conditions:

• The employee must work for a covered employer for at least 12 months. 
• There should be a minimum of 1,250 hours of service with the employer during the 12 months before the start of FMLA leave.
• The employee must work at a location where the employer has a minimum of 50 employees. 

For eligible employees, FMLA offers up to 12 workweeks of leave in one year for the following reasons:

• Childbirth or taking care of the newborn within a year of birth.
• The placement of a child for adoption or foster care, and care for the child within one year of placement.
• To provide care for the employee’s child, parent, or spouse with a serious health condition.
• A serious illness or medical condition hampering the employee’s work. 

Sick pay

There is no federal requirement for paid sick leave for employees in the USA. 

However, 17 states in the USA, along with Washington D.C., have mandatory paid sick leave laws. There are continuous amendments in the paid leave laws at the state and local levels in the USA. Each jurisdiction handles the leave laws differently. In March 2025, 82% of civilian workers in the USA enjoyed paid sick leave benefits. 

Maternity pay

According to the Family and Medical Leave Act (FMLA), an eligible female employee is eligible for unpaid maternity leave each year for the birth and care of a newborn child. If an employee takes time off due to pregnancy complications, it is calculated against the 12 weeks of family and medical leave. 

Paternity pay

There is no federal law guaranteeing paid paternity leave for employees in the USA. Interestingly, many states in the USA, such as New York, California, Washington, etc., have implemented individual paid family and medical leave programs, covering fathers for the birth or adoption of a child.

Severance pay

There is no statutory severance pay that needs to be paid to employees in the USA, according to the Fair Labor Standards Act. Severance pay depends on the agreement that takes place between the employer and the employee. 

What are the contributions and deductions in the payroll in the United States of America?

The mandatory contributions and deductions in the payroll in the USA include federal income tax, state income tax (wherever applicable), social security contributions, Medicare withholdings, federal and state unemployment taxes, and more. There are also additional voluntary deductions, including 401(k) contributions, health insurance premiums, and HSA/FSA contributions. 

Precisely, US payroll involves two distinct obligations: 

• Amounts withheld from employee pay and remitted to the government on their behalf, and 
• Amounts the employer owes independently

Here are the details:

Federal income tax

You must withhold federal income tax from employee wages each pay period. The amount depends on each employee’s Form W-4, which captures their filing status (single, married filing jointly, married filing separately, or head of household) and any extra amount they choose to withhold each pay period to cover outside income or personal tax preferences.

The current federal income tax in the US ranges from 10% to 37%. Here are the income tax brackets and rates for single filers, married couples filing jointly, and heads of households:

Tax Rate	Single Filers	Married couples filing jointly	Heads of households
10%	$0 to $12,400	$0 to $24,800	$0 to $17,700
12%	$12,401 to $50,400	$24,801 to $100,800	$17,701 to $67,450
22%	$50,401 to $105,700	$100,801 to $211,400	$67,451 to $105,700
24%	$105,701 to $201,775	$211,401 to $403,550	$105,701 to $201,775
32%	$201,776 to $256,225	$403,551 to $512,450	$201,776 to $256,200
35%	$256,226 to $640,600	$512,451 to $768,700	$256,201 to $640,600
37%	$640,601 or more	$768,701 or more	$640,601 or more

Social security contributions

The Federal Insurance Contributions Act (FICA) covers Social Security and Medicare.

Social security contributions for 2026 in the USA are funded by a 12.4% payroll tax, applied to a maximum taxable earnings limit of $184,500. Employers and employees each pay 6.2%. For self-employed professionals, the rate remains 12.4%. 

For Medicare, the tax rate under Medicare’s Hospital Insurance (HI) program is 1.45% each for employees and employers. For self-employed people, the rate remains 2.9%. 

Federal unemployment tax (FUTA)

The majority of employers pay the federal unemployment tax (FUTA). The FUTA tax rate is 6.0%. The tax applies to the first $7000/- that the employer pays to each employee during the year. The $7000/- is the FUTA wage base. 

State income tax and state unemployment tax (SUTA) 

Most states tax earned income and require employers to withhold state income tax from employee paychecks. 

For employers operating in multiple states, withholding rules must be followed separately for each state, using that state’s specific forms and tax tables. The Department of Labor provides state-by-state unemployment insurance contact information to help employers comply with local requirements.

Here is an example for a professional with a $70,000/- salary, single filer, using 2026 IRS federal tax brackets and FICA rates. This calculation doesn’t include state income tax, as that varies from one state to another. It also does not account for voluntary deductions:

Component	Calculation	Amount
Gross annual salary	–	$70,000
Standard deduction (2026)	–	-$16,100
Taxable Income	$70,000 − $16,100	$53,900
Federal Tax (10% bracket)	$12,400 × 10%	$1,240
Federal Tax (12% bracket)	$38,000 × 12%	$4,560
Federal Tax (22% bracket)	$3,500 × 22%	$770
Total Federal Income Tax	–	$6,570
Social Security (6.2%)	$70,000 × 6.2%	$4,340
Medicare (1.45%)	$70,000 × 1.45%	$1,015
Total FICA	–	$5,355
Total Deductions	Federal tax + FICA	$11,925
Net Annual Salary	$70,000 − $11,925	$58,075
Net Monthly Salary	$58,075 ÷ 12	≈$4,840

Payslip requirements in the USA

The FLSA requires employers to keep accurate records of hours worked, wages earned, and all deductions.

A US payslip generally includes: 

• Pay period start and end dates
• Gross wages (with hours for hourly workers)
• Each deduction is broken out by type (federal income tax, state income tax, Social Security, Medicare, health premiums, 401(k) contributions)
• The net amount paid

If you have employees in multiple states, you should verify the specific format and delivery requirements for each state before standardizing their pay slip process.

What are the other employee benefits in the United States of America?

The other employee benefits in the US, beyond wages and statutory social security contributions, include health insurance, retirement plans, paid leave, and more. These benefits support employee well-being and long-term financial security for employees in the country. Here are the details:

401(k) retirement plans

The 401(k) is a defined contribution plan. The plan does not promise a fixed benefit amount at retirement. Usually, the employee or the employer, or both, contribute to the individual’s account. There is usually a set annual earnings rate. This is one of the dominant employer-sponsored retirement vehicles in the USA. 

Health insurance

Health insurance in the USA runs on a hybrid system, a combination of private and public insurance. These are tied to government and employment programs. People in the country access health insurance through government programs such as Medicare and Medicaid, employer-sponsored plans, the ACA Health Insurance Marketplace, or individual plans. 

Paid leave

There is no federally paid vacation or paid sick leave requirement for private employers. The Family and Medical Leave Act (FMLA) guarantees eligible employees up to 12 weeks of unpaid, job-protected leave annually for qualifying family or medical events.

Because federal law does not mandate any paid leave, several states like California, New York, New Jersey, Washington, Massachusetts, and Colorado have introduced mandatory paid family and medical leave programs. 

Annual bonus

There is no federal law mandating employers to pay an annual bonus to employees in the USA. However, an annual bonus is considered discretionary or usually governed by private employment contracts. An end-of-the-year bonus is the most popular annual bonus as a sign of appreciation for the employees. 

Holiday or vacation bonus

A holiday bonus is not mandatory by law in the USA. Many employers provide this bonus on a holiday as a token of appreciation. Almost all employees receive the same amount of holiday bonus. 

Workers’ compensation insurance

Most US states require employers to carry workers’ compensation coverage for work-related injuries and illnesses.

Some states may make it elective for most private employers, though employers contracting with government entities are required to carry it. 

What are the payroll compliance best practices in the United States of America?

Payroll compliance best practices in the USA require accurate classification, timely filings, and updated recordkeeping. Best practices include correct workers classification as employees vs. independent contractors, withholding and remitting FICA/FUTA/SUTA taxes on schedule, staying current with state-specific minimum wage and overtime rules, maintaining I-9 and W-2/1099 records for required retention periods, and conducting regular payroll audits. 

It is better to get the US payroll right the first time than to have the IRS impose penalties on the due amount. State penalties differ but can add up fast, particularly for companies with nationwide sales teams. 

Here are some best practices for payroll compliance in the US: 

1. Get worker classification right the first time

The difference between an employee and an independent contractor affects all aspects of US payroll. Contractors get a Form 1099-NEC, no payroll tax withholding, and no FICA taxes on the employer’s side. Employees get a W-2 and the whole payroll package. 

The IRS has a two-part test, involving behavioral control, financial control, and the relationship, to determine the difference between an employee and an independent contractor. Make the wrong call, and you’ll face back taxes, penalties, and interest. 

Here’s when EOR solutions like Payoneer Workforce Management can help you mitigate potential risks of worker misclassification.

2. Know your deposit schedule

The IRS assigns employers a deposit schedule (monthly or semi-weekly) based on the total employment tax liability. All federal employer taxes in the United States of America must go through the Electronic Federal Tax Payment System (EFTPS). Missing a deposit deadline may trigger penalties. 

3. Keep filings on schedule

Employer taxes in the USA are filed at both the quarterly and annual levels. 

Missing any of these creates follow-up penalties separate from deposit penalties.

4. Keep payroll records

The FLSA requires that payroll records, including hours worked, wages paid, and deductions, be maintained for at least three years. Additionally, records regarding salary taxes in the United States must be maintained for at least four years under IRS guidelines. 

5. Monitor changes in state and local laws

Minimum wage rates, paid leave laws, and SUTA rates are all changing on their own timetables, with little notice. Thus, for companies with employees in multiple states, a quarterly compliance check may be a good starting point.

What happens when you run the United States of America payroll without an EOR?

When a business runs the United States of America payroll without an EOR, there are high chances of IRS penalties, state audits, and expensive legal and compliance risks when requirements are missed. Without an EOR, the business must register as a legal employer in every state where it hires, handle multi-state tax withholding, and manage compliance with federal and state labor laws. The business also has to bear full liability for misclassification or filing errors. 

Here is a quick comparison of running USA payroll with and without an EOR:

Factor	Payroll without EOR	Payroll with EOR
Tax compliance	The business manages federal, state, FICA, and FUTA/SUTA filings directly.	EOR handles all withholding, filing, and remittance.
Legal entity setup	Must register as an employer in every state where hired.	No entity registration needed, as the EOR is the legal employer.
Compliance risk	Full liability for misclassification, late filings, and audit exposure.	The EOR helps navigate and mitigate liability and compliance risk.
Worker misclassification risk	There is a high misclassification risk. The business bears IRS/DOL penalty exposure.	EOR manages classification compliance with significantly less misclassification risk.
Multi-state hiring and payroll	Requires separate registration/payroll compliance per state.	A single EOR can help you cover multiple states. (Depending on the EOR’s coverage)
Benefits administration	The business sources and manages health insurance, 401(k), etc.	EOR provides bundled, compliant benefits packages.

What are the options for payroll services in the United States?

There are several options for payroll services in the USA, including in-house payroll, using payroll software, hiring independent contractors, and seeking assistance from a trusted EOR, such as Payoneer Workforce Management. The best option to pay employees in the country depends on the size of the company, the number of states in which you operate, whether your employees are domestic or international, and the amount of in-house capacity that you have.

1. In-house payroll: This keeps full visibility and control within the organization but requires ongoing investment in software, training, and tax law monitoring. It tends to work best when operations are concentrated in a small number of states with predictable, stable workforces.
2. Payroll software: Cloud-based payroll platforms handle tax calculations, direct deposit processing, and standard filings automatically. They reduce the manual lift considerably. However, compliance responsibility still rests with the employer. Software tools do not assume legal liability for errors, and they still require a human to set up correctly, update withholding elections, and review outputs of each payroll cycle in the US.
3. Employer of Record (EOR): The EOR acts as the legal employer and assists with payroll processing, taxes, benefits, and compliance with federal and state employment laws. 

While the company gets to decide day-to-day tasks, Payoneer Workforce Management enables compliant onboarding and engagement of talent without setting up a legal entity in the US. 

The platform covers Employment of Record, Agent of Record, and contractor management services under one dashboard. 

Payoneer Workforce Management helps onboard talent quickly, run compliant payroll, and manage your global team, without setting up a local entity. Expand in 160+ countries and pay contractors in 70+ currencies through a single platform. 

Book a demo today!

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About the author

Martyna Krawczyk

HR and Immigration Lawyer, Global HR Operations

Martyna Krawczyk is an HR and Immigration Lawyer and Associate within the Global HR Operations team at Payoneer Workforce Management (formerly Skuad). She holds an LPC LL.M. from the University of Law in the UK and an Associate CIPD certification. Martyna also serves as Vice President of the Labour Law Association of Poland and was recognized at the Wolters Legal Hackathon 2024. Her areas of focus include international employment law, cross-border workforce compliance, and global immigration, supporting organizations in managing international workforces.