Employer Tax - Who is to pay?

[saravanan123]

I am with consultant and my H1B started from Oct 01, 2009. Right from the first day, I am working in the project. My employer is in California and my client is in Georgia.

Client paid my employer x dollars at the end of October. My employer paid me y dollars.

My employer has taken employee taxes (FIT, SSN, Medicare, other state taxes), employer taxes (SSN, Medicare, other state taxes) and his 25% commission from x dollars. I am ok with employee taxes and the commission. But the one that bothers me is employer tax. I checked with my friend who is working as full time in a different company. He said employer is not supposed to take 'Employer taxes’ from the employee’s salary, but he was not sure about the consultants.

As of now, my ‘y’ dollar is 40% of ‘x’. If the employer has not taken that ‘employer tax’ I would have at least 50% of ‘x’.

My question is, is this common with the consultants? In other words, is this the right way to do it?

Thanks

[immihelp]

What your employer gets from their client is irrelevant to you. Don't worry about what he makes. You have nothing to do with what percentage of the client payment to your employer is your salary. That is between those two parties.

Therefore, the way you are counting is wrong.

You are supposed to get whatever your salary is. Out of that, employer would deduct the employee portion of the payroll taxes. And employer would contribute the same amount of payroll taxes from his side as well.

Did you get what your salary is minus employee payroll taxes? If so, you are all set.

This works for any employees.

Think about how the consultant business works:
Client Payment = Employee Salary + Employer Payroll Taxes + Employer Other Expenses + Employer Profit.

In short, all the expenses your employer has would eventually come out from the income of your employer, not out of his personal pocket.

[saravanan123]

Re: Employer Tax - Who is to pay?

Thanks immihelp for the quick response.

I will further elaborate my situation.

The contract between me and my employer is 75%-25% split.

Like you said, I totally agree that I have to pay employee portion of the payroll taxes (FIT, SSN, Medicare).

But the employer is also taking ‘Employer portion of the payrolltaxes’ (SSN, Medicare) from my salary.

In other words, let’s say SSN tax is $ A and Medicare tax is $ B. My understanding is that I would pay $A + $ B from my side and my employer would pay $ A + $ B from his side. I thought $ A + $ B from my employer side has to come from his 25% profit and not from my 75% salary. But $ 2A + $ 2B is deducted from my salary. This is what concerning me.

Thanks for your time.

What your employer gets from their client is irrelevant to you. Don't worry about what he makes. You have nothing to do with what percentage of the client payment to your employer is your salary. That is between those two parties.

Therefore, the way you are counting is wrong.

You are supposed to get whatever your salary is. Out of that, employer would deduct the employee portion of the payroll taxes. And employer would contribute the same amount of payroll taxes from his side as well.

Did you get what your salary is minus employee payroll taxes? If so, you are all set.

This works for any employees.

Think about how the consultant business works:
Client Payment = Employee Salary + Employer Payroll Taxes + Employer Other Expenses + Employer Profit.

In short, all the expenses your employer has would eventually come out from the income of your employer, not out of his personal pocket.

[txh1b]

All these 75/25 agreements on a H1b itself is illegal. The employer should pay you wages on a W2 irrespective of what the billing is. Whatever you describe now is a civil matter between you and your employer.

As per the law, employer has to pay A+B. Whether it comes out of his profit or your 75% is irrelevant as such percentage agreements do not make sense to begin with.

[immihelp]

I completely agree with txh1b.

When you say you had 75/25 split agreement (of course keeping in mind that your salary is at least the prevailaing wage, at least what was specified in the LCA etc.), did you explicitly agree to where the employer payroll taxes would taken out from? From 75% or from 25%?

Irresective of your answer, please read reply by txh1b and my earlier reply again, and think from that perspective.

[saravanan123]

Thanks very much Admin and txh1b. I got the point.