A Canadian company that directly employs its first US worker must obtain an Employer Identification Number (EIN), withhold federal income tax, Social Security (6.2% each for employer and employee) and Medicare (1.45% each), deposit those taxes, and file the returns that apply, such as Form 941 and, where FUTA applies, Form 940. Canadian payroll registration does not carry over.
What is the first payroll step when a Canadian company hires in the US?
The first step is an EIN from the IRS. You need it to file quarterly returns, deposit payroll taxes and issue year-end wage statements, so apply before the first payroll.
A company with its principal place of business outside the US applies differently from a domestic one. The IRS says to apply by phone at 267-941-1099, Monday to Friday, 6 a.m. to 11 p.m. Eastern time, or to send the EIN application form by fax or mail to its international operation. It also says you can apply for only 1 EIN per day.
Plan for this before the offer letter goes out. A start date set before the EIN exists forces a scramble on the very first payday.
Does a foreign employer have to withhold US taxes on US-based staff?
Yes. The IRS states that wages for services performed in the United States "are subject to U.S. graduated tax rates and federal income tax withholding and reporting by the foreign employer." Your Canadian head office does not change that. Two exceptions are worth checking before the first payroll: the IRS notes that such wages may be exempt from withholding under an income tax treaty, and an employee covered by a totalization agreement who holds a Certificate of Coverage from their home country's social security agency can be exempt from US Social Security and Medicare taxes.
Each new hire completes the IRS withholding certificate so you can work out income tax withholding. You then add the employer and employee payroll taxes shown below.
What are the 2026 federal payroll tax rates?
The table uses the IRS Employer's Tax Guide for 2026 and the IRS Topic on FUTA.
| Tax | Who pays | 2026 rate | Limit |
|---|---|---|---|
| Social Security | Employer and employee, each | 6.2% | Wage base $184,500 |
| Medicare | Employer and employee, each | 1.45% | No wage base limit |
| Additional Medicare Tax | Employee, withheld by employer | 0.9% | Wages above $200,000 |
| FUTA (federal unemployment) | Employer | 6.0%, or 0.6% after the maximum 5.4% credit | First $7,000 per employee |
The state side is separate. State unemployment insurance and state withholding depend on where each employee works, and the FUTA credit assumes you pay into state funds. Check whether each state where employees work requires withholding and unemployment insurance accounts, and register any that apply before the first payroll.
What returns and deposits follow?
The IRS says employers use Form 941 to report federal income, Social Security and Medicare taxes withheld from paychecks, plus the employer's share of Social Security and Medicare. Form 940 reports FUTA annually. Year-end wage statements go to employees.
Treat the deposit schedule as a calendar item owned by a named person. Missed deposits are an avoidable error for new foreign employers.
What about immigration paperwork on day one?
USCIS says all US employers must complete Form I-9 for every individual they hire for employment in the United States. The employee completes Section 1 no later than the first day of employment. You keep the form for three years after hire or one year after employment ends, whichever is later.
This applies even to a Canadian employee you move to the US. Work authorization is a separate question from payroll.
Should you run payroll yourself or use an EOR or PEO?
An Employer of Record (EOR) or Professional Employer Organization (PEO) runs payroll for you. Whose registrations the returns are filed under, and how much tax responsibility stays with you, depend on the contract and the type of provider, so confirm both. That is faster for a first hire. Incorporating a US subsidiary gives you your own EIN, state accounts and control, but also the full filing burden.
Whichever path you choose, the tax rules above still apply to someone. Ask who is the legal employer, who files, and who bears the penalty if a deposit is late.
First-hire payroll checklist
- Decide the employment structure: direct hire by the Canadian company, a US subsidiary or an EOR. If you use a PEO, confirm the employment relationship and which responsibilities stay with you.
- If you employ and file directly, obtain your own EIN before the start date. With an EOR, confirm who is the legal employer and which EIN the filings use.
- Check whether the work state requires withholding and unemployment insurance accounts, and register any that apply.
- Collect the withholding certificate and have Form I-9 Section 1 completed by day one.
- Calendar the Form 941 and Form 940 filings and tax deposits.
FAQ
Can I use my Canadian payroll account for a US employee?
No. Canadian payroll registration does not cover US federal taxes. If you employ directly, you need a US EIN and US filings, plus any state accounts that apply.
Can a foreign company get an EIN without a US address?
Yes. The IRS lets applicants with a principal place of business outside the US apply by phone at 267-941-1099 or send the application form by fax or mail.
Is the Social Security wage base the same for every employee?
The 2026 limit is $184,500 of wages per employee. Medicare has no wage base limit, and Additional Medicare Tax applies above $200,000.
Does FUTA apply to every dollar of wages?
No. FUTA applies to the first $7,000 paid to each employee, at 6.0%, or 0.6% after the maximum credit.
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Disclaimer: This article is general information, not legal or tax advice. Sources: IRS Publication 15 (2026), https://www.irs.gov/publications/p15; IRS Understanding Employment Taxes, https://www.irs.gov/businesses/small-businesses-self-employed/understanding-employment-taxes; IRS Topic no. 759, https://www.irs.gov/taxtopics/tc759; IRS Employer ID Numbers, https://www.irs.gov/businesses/small-businesses-self-employed/employer-id-numbers; IRS About Form 941, https://www.irs.gov/forms-pubs/about-form-941; IRS Persons Employed by a Foreign Person, https://www.irs.gov/individuals/international-taxpayers/persons-employed-by-a-foreign-person; IRS Totalization Agreements, https://www.irs.gov/individuals/international-taxpayers/totalization-agreements; USCIS Form I-9, https://www.uscis.gov/i-9; USCIS Handbook M-274 Section 1.