If your Australian company employs US citizens, operates subsidiaries across the Pacific, or pays US-based contractors, the Internal Revenue Service’s Publication 15—better known as Circular E—is a document you can’t afford to ignore. In 2025, with global payroll compliance under greater scrutiny and tax authorities sharing more data, understanding IRS Publication 15 is not just a US issue: it’s a cross-border business necessity.
What is IRS Publication 15 and Why Should Australians Care?
IRS Publication 15 is the US federal government’s official employer’s tax guide. It details the rules for withholding, depositing, reporting, and paying employment taxes—think federal income tax, social security, and Medicare taxes. While designed for US employers, it’s also critical for Australian businesses with any US payroll exposure, including:
- Australian companies employing US-based staff
- Businesses with US subsidiaries or branches
- Firms paying US contractors who may be considered employees under IRS rules
Why does this matter in 2025? Post-pandemic remote work, digital nomadism, and the ATO’s ongoing information-sharing with the IRS mean more Australian firms risk unintentional non-compliance—potentially triggering penalties, double-taxation, or even payroll account freezes in the US.
2025 Updates: What’s New in Publication 15?
This year’s IRS Publication 15 features several changes that could impact Australians:
- Social Security Wage Base Increase: For 2025, the maximum earnings subject to US Social Security tax rises to $168,600, up from $160,200 in 2024. Employers must adjust payroll systems accordingly.
- Federal Income Tax Withholding Tables: The IRS has updated withholding tables to reflect inflation and new tax brackets. This affects how much is withheld from US employee paychecks—errors here can result in underpayment penalties.
- Electronic Filing Mandate: Businesses filing 10 or more W-2s or 1099s (down from 250 in prior years) must now file electronically. This applies to many Australian companies with a US payroll agent or PEO.
- Remote Work and Nexus Guidance: The IRS clarifies that foreign employers with US-based remote workers may establish a US tax presence (‘nexus’), triggering employment tax obligations—even if the business itself has no physical US office.
For a full breakdown of the 2025 changes, see the IRS Publication 15 (2025 PDF).
Australian Businesses: Key Compliance Steps for 2025
Managing US payroll from Australia is complex, but these practical steps can help keep your business compliant and avoid costly mistakes:
- Assess Employee vs Contractor Status: The IRS has strict criteria for classifying US workers. Misclassification can trigger back taxes and penalties. Review roles annually, especially with remote or part-time US staff.
- Register for an EIN (Employer Identification Number): If you employ anyone in the US, you need an EIN. This is required for tax filings, payroll accounts, and compliance correspondence.
- Withhold and Remit the Correct Amounts: Use the 2025 IRS tables to calculate federal income tax, Social Security, and Medicare withholdings. Many Australian payroll providers now integrate US tables, but manual checks are wise.
- Meet US Reporting Deadlines: W-2s for employees and 1099-NECs for contractors must be filed by January 31, 2026 for the 2025 tax year. Electronic filing is now mandatory for most cross-border employers.
- Understand State Tax Obligations: Some states have their own withholding rules. If your US staff are in California, New York, or Texas, state-level compliance is just as important as federal.
For Australian businesses new to US payroll, consider engaging a specialist payroll firm or a US-based accountant familiar with cross-border tax. The ATO and IRS regularly share payroll and tax data, so transparency and proactive compliance are essential.
Real-World Example: Sydney SaaS Startup Expands to the US
In 2024, a Sydney-based SaaS company hired two US-based sales reps working remotely from Seattle and Austin. The company initially paid them as independent contractors, but an IRS review in early 2025 reclassified them as employees. Because the company hadn’t withheld Social Security and Medicare taxes, it faced back payments and fines. After consulting both Australian and US payroll experts, the startup registered for an EIN, updated its payroll software to reflect 2025 IRS Publication 15 tables, and now files all W-2s electronically—avoiding further compliance headaches.
Conclusion: Stay Ahead of US Payroll Rules in 2025
IRS Publication 15 isn’t just for American firms—it’s a must-read for any Australian business with US payroll exposure. With new 2025 rules around electronic filing, wage bases, and remote work, the cost of ignoring Circular E is higher than ever. Invest in the right systems, seek expert help when needed, and stay proactive to keep your cross-border team—and your business—compliant and penalty-free.
