Tax Benefits for Employers Hiring Seasonal J1 Foreign Staff

How Much Can Employers Save?

American Employers can legally save 7.79% off their total payroll expenses simply by hiring J1 students. As any employees, foreign students are required to pay Federal, State and local taxes, but they are exempt from paying Medicare, Social Security or Federal Unemployment tax. Regularly, the employers match some of the 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 6.2% 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.