We are a Pennsylvania business interested in hiring a Texas employee who will work in Texas (obviously). What payroll taxes (both employer and employee) would I need to deduct from his payroll?

Any help would be greatly appreciated!

Julie Weicht

You will need to deduct federal income tax plus federal employment tax (social security and medicare). Do not deduct any state income taxes, as TX does not have an income tax. You will then have to pay these withholdings plus the employer's contribution for ss and medicare to the IRS each quarter (assuming at least $500 is owed). For more info see: http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Depositing-and-Reporting-Employment-Taxes

Everything ebaines said is 100% accurate, as usual.

However, given that your "employee" is in another state thousands of miles away and not being directly supervised, a real argument could be made that he is NOT an employee, but rather an independent contractor.

If you go that route, then NOTHING needs to be withheld and you send him a Form 1099-MISC rather than a W-2 at the beginning of the tax year.

You should increase his pay somewhat to compensate him for having to pay BOTH sides of the FICA (social Security and Medicare) taxes, but you are more than compensated by the fact that NO unemployment taxes will be due from you, plus you do NOT have the hassle of adding another employee to your business.