Payroll Tax Benefits for Employers
Promote Cultural Exchange and Save!
The tax contribution savings when hiring the international students shouldn't be perceived as primary aspect of the program. The J1 Program primary aspects are about immersion of the foreigners into American environment and sharing of their country's culture with US citizens both at work and in their free time. However most American employers can legally save 7.79% off their total payroll expenses simply by promoting cultural exchange and hiring J1 students. As any employees, international students are required to pay Federal, State and local taxes, but are exempt from paying Medicare, Social Security or Federal Unemployment tax. Regularly, the employers match some of these taxes, contributing a sum equal to 6.2% of the employee's wages towards Social Security tax, 1.45% towards Medicare tax and up to 0.8% towards Federal Unemployment tax. Since J1 students pay zero Social Security, zero Medicare and zero Federal Unemployment, employers pay nothing to match these taxes, which account for at least 7.79% of their total payroll expenses (or 8.45% of the total employees' salaries).
In some instances, employers can save even more than 7.79% of their payroll expenses. Generally, Federal Unemployment tax rate is 6.2%, but employers are allowed to take a credit of up to 5.4% for their State Unemployment tax. If your State rate is less than 5.4%, your maximum credit for Federal Unemployment tax will decrease thus increasing total savings from hiring J1 exchange students.
For more information, please refer to IRS Employers Tax Guide Publication 5.15 or your state's taxation and revenue department. We always encourage employers to spend the funds saved on taxation to arrange cultural events and trips for the students, so they can enjoy the sights, the people and bring these experiences back to their home country