What do we owe when we hire our first employee in the US?
More separate registrations than most Canadian employers expect. Federal obligations begin with obtaining an employer identifier and then depositing withheld amounts on a schedule tied to the size of your payroll, with periodic and annual returns. State obligations are additional and entirely separate: state income tax withholding where the state imposes it, and state unemployment insurance, each with its own account and its own returns. Hiring in a state also frequently brings a corporate registration in that state, which is a company-law step rather than a payroll one. The list is therefore federal, state and corporate, and each item has to be opened in its own right.
Which state do we withhold for if the employee works from home?
The employee's own state — the one where the work is physically performed — not the state where the company registered or where its US customers happen to be. This is the point that catches groups who set up in one state for convenience and then hire someone working from a house two states away: the home state governs the withholding, the unemployment insurance account and, often, the corporate registration. If the employee moves house across a state line, the answer moves with them and the accounts have to follow. The practical control is to record each employee's work location and treat a change of address as a payroll event.
Do we have to register the company in our employee's state?
Frequently yes, and it is a separate decision from payroll. Employing someone in a state is commonly enough presence to require the company to register to do business there, which brings its own annual filings and can bring state tax registrations beyond payroll. Employers usually discover this when they try to open a state withholding or unemployment insurance account and are asked for a registration number they do not have, which is why the corporate step is normally taken first. It is worth settling before the hire, because the sequence of registrations determines how quickly the first payroll can be run properly rather than provisionally.
How often do we have to deposit US payroll withholding?
On a schedule that is set for you, tied to the size of your payroll, and known in advance of the period it applies to rather than chosen afresh each month. A small employer and a larger one are not on the same footing, and a company whose payroll grows can move from one schedule to the other — which is where Canadian employers most often trip, because nothing in the day-to-day payroll flags the change. Deposits are also distinct from the periodic and annual returns; making the deposits does not discharge the reporting. We set the schedule into the calendar and re-test it as headcount changes.
Is unemployment insurance separate from state income tax withholding?
Yes, and treating them as one is a frequent source of missed registrations. State income tax withholding is deducted from the employee and remitted; state unemployment insurance is an employer cost with its own account, its own rate and its own returns. Some states impose no income tax withholding at all and still require the unemployment insurance account, so an employer reasoning from the income tax alone concludes wrongly that the state needs nothing. Each employee's work state has to be tested for both, separately, and the accounts opened separately. The two also fall due on different cycles, so one calendar entry will not cover them.
Can we keep our US employee on the Canadian payroll instead?
Not as a way of avoiding the US obligations. Payroll follows the place where the work is done, so an employee working in a US state creates federal withholding, that state's withholding where it applies, and unemployment insurance there, whichever payroll system the salary happens to run through. Disbursing from a Canadian account changes none of it; it usually just means the obligations accrue while nothing is registered to meet them. There are structures — an employer of record, or a properly established US entity — that change who the employer is, and each has its own consequences. Choosing between them is a decision to take before the hire.
What is a totalization agreement and how do I use one?
A social security agreement that stops you contributing to two systems for the same work, and lets periods in both count towards benefit eligibility in either. Which system you stay in depends on the agreement's rules for your situation — a seconded employee usually remains in the home system for a set period, a locally hired one usually joins the host system. You evidence it with a certificate of coverage obtained before or shortly after the assignment starts. See certificates of coverage.
Which countries have a tax treaty with the United States?
Around sixty, including Canada, the United Kingdom, India, Australia and most of western Europe — but the list matters less than the terms, because each treaty caps rates and allocates income differently. Two countries with treaties can produce opposite answers on the same pension or the same royalty. What decides your position is the specific article covering your income type. See our country guides.
