How To Handle Federal And State Payroll Paperwork

Few things are as exciting-or as scary-as hiring yourreturns, such as unemployment taxes, workers'
first employee. Whether you're a small business that iscompensation, and so on.
doubling its work force (from one employee to two4. If you intend to withhold state income taxes, obtain
employees!) or a busy professional hiring your firstyour state's equivalent of Circular E. It tells how much
household employee, it's a big step to suddenlystate income tax to withhold from an employee's
assume the responsibility of regularly meeting a payroll.payroll check.
Unfortunately, in addition to all the other issues that you5. Obtain federal and perhaps state tax deposit
now need to address-whether you can afford newcoupons so that you can remit federal and state tax
employees, picking the best person for a job, and sodeposits to the IRS and the equivalent state revenue
on-you also have mounds of new paperwork to dealagency. (Ask for these if you don't get them
with.automatically.)
I can't describe all this new paperwork, but I can give6. At the end of the first quarter during which you
you an overview of what you need to collect andemploy people, obtain the appropriate federal and
prepare for the federal and state governments. If youstate quarterly payroll tax return forms. For federal
have questions about all this, I suggest you confer withpayroll taxes, businesses should use the 941 form. You
an accountant or a bookkeeper who specializes inalso probably need to file equivalent state quarterly
helping small businesses prepare their payroll andpayroll tax returns.
payroll tax returns.7. At the end of the year, obtain the appropriate
New Employer Checklistfederal and state annual payroll tax returns. For federal
As a new employer, you need to do the following:unemployment tax returns, for example, you need the
1. Request and receive a Federal Tax Identification940 or the 940EZ form, and again, you probably need
number from the IRS. To do this, fill out IRS form SS-4the equivalent state form for annual payroll tax returns.
(call the IRS to request one or visit the IRS web site atWhen You Hire a New Employee
to download one) and return it to the IRS. The IRS willWhenever you hire a new employee, the employee
send you a Federal Tax Identification number.must fill out a W-4 form. This form provides you with
NOTE You can also receive a Federal Taxthe employee's Social Security number, filing status,
Identification number over the telephone. Just tell theand personal exemptions. You need both the filing
IRS agent how you filled out the SS-4 form, and he orstatus and the personal exemptions to determine the
she will enter it into the IRS computer and give you theamount of federal income taxes to withhold, and you
number. You still need to send or fax in the SS-4 form,need the employee's Social Security number so you
however.can prepare a year-end W-2 statement.
2. Obtain a copy of the Employer's Tax Guide,You will very likely have other requirements, which are
commonly referred to as a Circular E, from the IRS.not related to income taxes, to meet. For example, you
This pamphlet tells you how much federal income taxmay need to verify to the Immigration and
you need to withhold from a person's check and whatNaturalization Service (INS) that the person you're
Social Security and Medicare taxes you and theemploying either is a U.S. citizen or has a valid work
employee pay. (As noted earlier, you can downloadpermit. Be sure to check for this type of requirement.
this document from the IRS web site.)The IRS's Employer's Tax Guide and the equivalent
3. If your state requires it, get an employer identificationstate information guide can supply most of the
number from your state for filing state payroll taxinformation you need.