This article was originally published for The Tax Adviser.
For non-U.S. employers whose employees have nexus to the United States, compliance with U.S. Social Security obligations under the Federal Insurance Contributions Act (FICA) can pose unexpected challenges. While the FICA rules are generally applied — with few exceptions — on a territorial basis, employees working outside the United States may also be subject to FICA tax if both the employer and the employee have a connection to the United States. Determining an employer’s and employee’s FICA obligations can be nuanced and often requires an examination of the employee’s visa type, the location where the employee is performing services, applicable in-force totalization agreements (if any), and statutes and regulations that are sometimes unclear.
A foreign employer’s obligation to comply with U.S. FICA rules can be administratively burdensome and generally requires the establishment of a U.S. payroll system. This, in turn, can lead to the foreign employer needing to comply with other obligations, such as wage withholding, unemployment tax, corporate income tax, and other federal and state requirements.
See the full article by BDO’s Global Employer Services group for The Tax Adviser.