Payroll compliance in the US operates on two levels simultaneously — federal requirements that apply everywhere, and state requirements that vary significantly by jurisdiction. When you're placing consultants across state lines, both apply.

Federal Requirements (Apply Everywhere)

  • Federal income tax withholding based on W-4 elections
  • FICA taxes — Social Security (6.2%) and Medicare (1.45%) — matched by the employer
  • Federal Unemployment Tax (FUTA) — 6% on the first $7,000 of each employee's wages
  • Quarterly 941 filings reporting wages and withholding
  • Annual W-2s to employees and W-3 to the SSA

State Requirements (Vary Significantly)

  • State income tax withholding — 9 states have no state income tax; others range from flat rates to progressive structures
  • State unemployment insurance (SUI) — rates and wage bases vary by state and employer experience
  • State disability insurance — required in some states (CA, NY, NJ, HI, RI, PR)
  • Local taxes — some cities and counties impose additional payroll taxes
  • Paid leave requirements — increasingly common and vary by state

Why This Gets Complex Quickly

Each state where a consultant performs work creates a potential payroll tax nexus. If you have a consultant working remotely from California for a client in New York, you may have obligations in both states. Managing this manually — or incorrectly — creates real financial exposure.

This is one of the core problems HR2HR solves. Multi-state payroll compliance is handled as part of the partnership — you don't need to track changing rules across jurisdictions yourself.