Obtain an Employer Identification Number
Before hiring your first employee, you need to register your business with the US Internal Revenue Service (IRS). To do so, you must obtain an employment identification number (EIN) – often referred to as a Federal Tax Identification Number, Employer Tax ID or Form SS-4. The EIN is necessary for reporting taxes and other documents to the IRS. In addition, the EIN is necessary when reporting information about your employees to state agencies.
Set up a payroll system to withhold taxes
The IRS requires that you keep records of employment taxes for at least four years. Keeping good records can also help you monitor the progress of your business, prepare financial statements, identify the sources of receipts, keep track of deductible expenses, prepare your tax returns, and support items reported on tax returns.
Federal Income Tax Withholding
Every employee must provide their employer with a signed W-4 withholding exemption form so that you can withhold the correct amount from their paychecks. On the W-4 form, employees tell you how many allowances they are claiming for tax purposes. You should ask employees to fill out a new W-4 form each year if they want to change their allowances. For more specific information, read the IRS Employer’s Tax Guide or check out irs.gov.
Verify employee eligibility
Federal law requires employers to verify an employee’s eligibility to work in the United States. Within three days of hire, employers must complete Form I-9, employment eligibility verification, to confirm the employee’s citizenship or eligibility to work in the U.S. To verify citizenship, employers can only request the documentation specified on the I-9 form.
Employers must keep each employees I-9 on file for three years after the date of hire or one year after the date of the employee’s termination, whichever is later.
NOTE: Employers can use information taken from the Form I-9 to electronically verify the employment eligibility of newly hired employees by registering with E-Verify.
Report new hires to the State
All employers are required to report newly hired and re-hired employees to California’s New Employee Registry within 20 days of their hire or rehire date.
File your taxes
Every year, employers must report the amount of wages paid and taxes withheld for each employee on a federal wage and tax statement. This report is filed using Form W-2, wage and tax statement which employers must complete for each employee.
By the last day of February, employers must send Copy A of their employees W-2 forms to the Social Security Administration to report wages and taxes of your employees for the previous calendar year. In addition, employers should send copies of W-2 forms to their employees by January 31 of the year following the reporting period. Visit ssa.gov/employer for more information.
The US Small Business Administration (SBA) explains how to start the hiring process and ensure you are compliant with key federal and state regulations.
Nolo, formerly known as Nolo Press, is a Bay Area publisher that produces do-it-yourself legal books and software that reduce the need for people to hire lawyers for simple legal matters.
A to-do list for new employers produced by Nolo, a Berkeley-based legal advice publisher.
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