How can an Umbrella Company Help with Contracting in USA?
Most freelance workers aren’t superheroes who successfully tackle these issues all on their own. There are companies who specialise in helping workers make the most out of their contracts.
They’re called Umbrella Companies (or, contractor management companies).
Basically, an Umbrella Company acts as your full-time employer, even though you maintain your independence as a contractor. They collect and filter payments from your clients, filtering out the necessary social security and fees. You send them your timesheets, and they send you payments.
Because they act as your “employer,’ they can sponsor you and provide a single work permit for multiple contracts in the US. Even better, most are experts in US and expat tax law, meaning they’ll also help you optimise your earnings in the US.
Although the Umbrella Company is technically your “employer,” you’re essentially freeing yourself to work even more independently. You still dictate your contracts, your hours, your schedule. The Umbrella Company simply filters out the time-consuming admin and immigration issues, allowing you to focus on your new contract.
Can I Organise My Taxes and Work Permit Myself?
Generally, you need to have an employer sponsor in order to secure the appropriate work permit and work visa for the US.
If you’re working independently, it can be difficult to find clients willing to sponsor you. Moreover, even if your client can do this, you’ll need a new sponsor each time you decide to take on a new contract. Of course, every new sponsor will mean more paperwork.
Also, are you familiar with the intricacies of the tax system in the US, as well as your own country’s laws on overseas earnings? If so, good on you!
However, if you’re like the rest of us, figuring out (much less reducing) your tax liability in the US and your home country can seem like full-time work in itself.
A Contractor’s Guide to Taxes in USA
One of the most consistently challenging aspects of contracting in USA is complying with the country’s tax system. As well as paying tax in the US, you might also still be eligible to pay some tax in your home country, and understanding the legislation behind this can be a challenge.
How do I calculate my taxable income in USA
If you’re working in the USA under a permanent contract, many employers will handle your tax under the PAYE (pay-as-you-earn) system. Your employer is required to withhold federal income tax, social security tax, Medicare tax and other deductions from each payment of wages and/or other compensation. This means that they calculate and process your taxes for you and then send you a net wage. This is the easiest way to handle your income tax in the USA, but contractors may not be offered this service because of their short stay with each employer.
Anybody who can’t pay their tax in the USA through PAYE is left with the prospect doing everything themselves.
Do you know much about US Tax Law? Does the US have a tax treaty with your home country? You will need to find out or find someone who can help! Income tax in the US can range from 10% to 37% percent, and you need to be sure you are placed in the correct tax brackets.
Tax Filing as a Contractor in USA
| When Do You Need to Lodge Your Tax Return? | April 15 |
| Tax Filing Deadline | April 15 (or the following business day if April 15 falls on a weekend or a public holiday) |
| Can you file it online? | Yes, https://www.irs.gov/filing/free-file-do-your-federal-taxes-for-free |
How to File Taxes in USA as a Contractor
You can file your taxes online or by mail.
Step 1: Gather all relevant documents and information. These may include:
- Your Adjusted Gross Income (from your last year’s tax return or the IRS Get Transcript Online(link is external)tool)
- Social Security numbers for yourself, your spouse and dependents (if applicable)
- W-2s, showing annual wages from your employers
- Any forms showing interest, tax credits and/or dividends paid to you
Click here(link is external) for a comprehensive list.
Step 2: Obtain the relevant tax forms. IRS e-file(link is external) can choose the best form for your situation. In general, use:
- 1040EZ if your taxable income is below $100,000; your filing status is single or married filing jointly; you are not claiming any dependents; and your interest income is $1,500 or less.
- 1040A if your taxable income is below $100,000; you have capital gain distributions; you claim certain tax credits; and you claim adjustments to income for IRA contributions and student loan interest.
- 1040 if your taxable income is $100,000 or more; you claim itemized deductions; you are reporting self-employment income; and you are reporting income from sale of a property.
Step 3: Sign and submit your tax forms. This can be done online or by mail. The postal address for your state can be found on the IRS website here(link is external).
Tax Figures in USA
| Currency | US Dollar (USD) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Tax-free Threshold in USA | None | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income Tax Rates |
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| Notes | Which Category: The four different categories of taxpayers are subject to different tax rates. Married taxpayers can benefit more from filing jointly than from filing separately. However, they may not be able to, if either spouse is a non-resident at any time during the tax year. Estimated Tax Payments: Your employer (or umbrella company) is required to withhold taxes from each payment of wages and/or other compensation. You may be required to pay estimated tax in quarterly instalments if it is expected that withholding will not cover your annual tax liability. Federal estimated tax payments are due on April 15, June 15, September 15 of the current year, and January 15 of the following year. |
Tax Residency in USA
When do you become a tax resident in USA
You become a tax resident in USA when:
You become a tax resident in USA when:
- You become a ‘green card’ holder i.e. you become a lawful permanent resident; or
- You meet the ‘substantial presence test i.e. you are present in the US for at least 31 days in the current year and a total of 183 days during the current year and preceding 2 years. Each day of presence during the current calendar year counts as 1 day, each day in the preceding year counts as 1/3 of a day and each day in the second preceding year counts as 1/6 of a day.
Does the 183 day rule apply in USA
Yes
Am I taxed on my global income in USA
Yes. Residents who hold green cards but leave the US to live abroad indefinitely or permanently will continue to be taxed as foreign residents (i.e. taxed on their global income) until the green card is relinquished.
Can you set up your own Limited Company in USA?
| How long does it take to set up | 6 days |
| How much does it cost | USD750 |
| Is it easy? | Starting a Business Rank: 49/190 (Source: World Bank) |
Tax Calculator in USA
If you are a contractor and want a calculation on your tax and net retention in the US, we can supply it to you free of charge.
Using an Umbrella Company for Income Tax in USA
Contractors in the US are faced with masses of paperwork and numerous wasted hours filing a tax return unless they find an alternative option. An umbrella company in the US can act as your employer during your stay in the country whilst still allowing you the freedom of a contractor. The only difference is that you submit your timesheets to them; they’ll calculate and pay your taxes as you earn, and then you receive a net wage (as well as documentation for your records).
The companies are experts in taxation in the US, and they’ll ensure that you keep the largest proportion of your earnings whilst complying with local laws. They can deal with any issues with the US tax office or tax department directly including processing your tax refund if you are eligible.
How We Can Help You with Tax in USA
We work with numerous umbrella companies in the US, many of whom are experts in tax and immigration laws. If you have any questions about tax in the US, we’ll get the answers from them directly so you can rest assured you’ll be getting accurate information. We have comprehensive knowledge of the different services they provide, and can help you find the right company to handle your income tax. We help oil and gas workers, software developers, IT project managers, testers, business analysts and telecommunications contractors get tax efficient payments and sponsorship for their US work permit.
Our advice is 100 percent free, and comes with no obligations. You will be paying taxes in the US but without the overhead of directly dealing with the US tax authorities. Get in touch with us today for some reliable advice on tax in the US!
A Contractor’s Guide to Work Permits in USA
Immigration is one of the primary concerns for any contractor hoping to start working in the US. Permanent employees will find it easy to get their US work permit because they’ll receive “sponsorship” for their entire stay from their prospective employer.
The US work permit, known more commonly as the B1, H1B, L1, E1 or E2 Visa, is dependent on this sponsorship because it confirms that you’ll be earning money during your stay in the country. Contracting in the US is more difficult because the work permit is tied to one employer, so you have to change it to suit each new contract. Thankfully, umbrella companies provide a convenient and effective solution to this issue.
How Does an Umbrella Company Work?
Most people want to do their work, earn their money and enjoy their spare time without taking on loads of admin in a new country. That is why an umbrella company can help.
When you’re working through an Umbrella Company, you’ll essentially be outsourcing the admin and tax issues to specialists.
While the umbrella company will charge a fee, you’ll likely end up saving more money in the long run: you’ll be able to focus on your work, expertly reduce your tax liability, and comply with all laws and regulations in the US (which means avoiding fees, fines, or even worse penalties).
How Can We Help You?
There’s a huge variety of Umbrella Companies with different specialities and advantages in the US. How do you find the right one for your circumstances?
We work closely with Umbrella Companies all throughout the US and match contractors with the right company for them. If you’ve already secured a contract in the US, we can help you find your best match (for free). Or, we can simply give you feedback on your situation (for free).
