03 Apr Hiring Employees for the First Time? What to Review.
Has your business grown significantly? Great! As a business owner, nothing can be more fulfilling than reaching a point where employees are needed to sustain the business operations and the business can afford to hire. In addition to the task of finding the right candidate, business owners must learn what new requirements apply to a business with employees. Here are some tips on where to get started getting in the know:
- Secure an Employer Identification Number (EIN).
Employer Identification Numbers (EIN) are federal tax identification numbers for businesses. If your business does not have an EIN, it will be necessary when you hire employees. Fortunately, the Internal Revenue Service offers an option obtain a new EIN online almost instantly: https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Employer-ID-Numbers-EINs.
To secure a new EIN, the business must be located in the United States or U.S. Territory and the business owner must have a valid Taxpayer Identification Number, such as a Social Security Number, ITIN or EIN. See Online EIN: Frequently Asked Questions for assistance in using the online EIN application process: https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Online-EIN-Frequently-Asked-Questions.
Don’t forget your state! State taxing agencies often have requirements for state numbers or charters. Visit your state’s government website to ensure you secure any required identification numbers there as well: https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/State-Links-1.
- Confirm the Employee is Eligible to work in the US and has a Social Security Number
As an employer, you are required to ensure that your employees are eligible to work within the United States. Ensure that your employees fill out a Form I-9, which can be found here: https://www.uscis.gov/sites/default/files/files/form/i-9.pdf
Your potential employee must also have a Social Security Number and provide the number to the business so that you can report income on Form W-2 and Form W-3 (https://www.irs.gov/pub/irs-pdf/fw2.pdf). Do not accept an ITIN in replacement of a Social Security Number. If the potential employee does not have a SSN, simply direct him or her to apply for a Social Security Number with the Social Security Administration before you hire.
- Review Your Withholding Requirements
Ask all new employees to complete a Form W-4, which will formally notify the business how much to withhold form the employees’ pay (https://www.irs.gov/pub/irs-pdf/fw4.pdf). Part-time and seasonal employees are subject to the same withholding rules as full-time employees.
The business must withhold the correct amount of tax from the employee at each pay period and subsequently deposit the funds with the Internal Revenue Service and State. Review the next topic to find resources on how to make deposits timely and accurately.
- Review Your Deposit Requirements
Once you have withheld taxes from your employee’s pay, you are required to deposit (1) the federal income tax withheld from the employee; (2) Social Security and Medicare taxes for the employee and (3) Social Security and Medicare taxes for the employer.
The Internal Revenue Service requires that federal tax deposits be made on one of two deposit schedules: semi-weekly or monthly. At the beginning of each tax year, you must review your business requirements to determine which schedule your business must adhere to in order to remain in compliance. To learn about your business’ requirements, review IRS Publication 15 (https://www.irs.gov/pub/irs-pdf/p15.pdf) and the IRS website’s Employment Tax Due Date page: https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Employment-Tax-Due-Dates
As all deposits must be made electronically, the business must create an account with the Electronic Federal Tax Payment System (EFTPS), which can be found here: https://www.eftps.com/eftps/.
- Review Your Reporting Requirements
Additional tax returns are required when an employer withholds income tax, Social Security and Medicare taxes. Your business is required to file Form 941, Form 943, Form 944, or Form 945 to report withholding to the Internal Revenue Service. An employer is also required to file Form 940 for the federal unemployment taxes and Form W-3 and W-2. Read IRS Publication 15 and review its reporting requirements page to ensure you are prepared to file all required returns and forms when you decide to hire employees: https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Depositing-and-Reporting-Employment-Taxes.
Bookmark the IRS Calendar for due dates to keep yourself up to date: http://www.tax.gov/calendar/.
- Review The Affordable Care Act
Under the Affordable Care Act, some employers are required to offer qualified health insurance coverage to their employees or, in the alternative, must make employer shared responsibility payments. In considering whether to hire employees, review your business’ requirements under the employer provisions of the new Act: https://www.irs.gov/Affordable-Care-Act/Employers/Employer-Shared-Responsibility-Provisions.
It is best to have a tax professional assist you in providing a full overview of your business’ employment tax obligations based on its specific situation. However, taking the time to educate yourself on the tax requirements of being an employer is crucial to making an informed decision.
Are you already an employer and have not been able to get your business into compliance? Tax Defense Partners can help you get your business in compliance with its tax obligations and resolve your tax matter quickly and permanently.