I just hired my first employee. What are my federal tax responsibilities as an employer?
Law & Taxation mentor Barbara Weltman responds:
You have to follow certain steps to avoid getting into trouble with the IRS.
- Obtain an employer identification number (file Form SS-4, which you can download from the IRS Web site).
- Withhold income taxes and FICA (Social Security and Medicare taxes) from your employees' wages. Withholding requirements are explained in IRS Publication 15, Circular E, Employer's Tax Guide.
- Deposit those withholdings along with your employer share of FICA. While large employers must deposit these taxes via the Electronic Federal Tax Payment System (EFTPS), a system that authorizes transfers from your bank account via telephone or your computer, you can mail or deliver the taxes to a Federal Reserve Bank or authorized financial institution. (If quarterly withheld taxes are less than $1,000, you can pay them directly with your quarterly tax return instead of depositing them.) As a matter of convenience, you may wish to use EFTPS even if you're not required to do so. To find out more about EFTPS, call 800-945-8400 or 800-555-4477.
- File your employment tax forms on time. Form 941, Employer's Quarterly Federal Tax Return, is due every quarter. You may be eligible to file by telephone using the 941TeleFile system; many small businesses already do so. Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return, or a simplified version, Form 940-EZ, Employer's Annual Federal Unemployment (FUTA) Tax Return, is due annually.
In addition to federal requirements, your state may require you to withhold taxes as well, so check your state's requirements to ensure you've filed all the necessary employment taxes in a timely fashion.
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