Let's briefly discuss the employment taxes you must pay, the forms you must file to report them, and other forms that must be filed when you have employees. Employment taxes include the following.
- Social Security and Medicare Taxes
- Federal/State income tax withholding
- Federal/State unemployment (FUTA) tax
If you have employees, you will need to get IRS Publication 15, Circular E, Employer's Tax Guide. If you have agricultural employees, get Publication 51, Circular A, Agricultural Employer's Tax Guide. These guides explain your tax responsibilities as an employer. Remember that even if you use a payroll services to handle these matters, it is still your fault if a mistake is made and you need to know the law so you know if they are doing it right.
You must withhold federal income tax from your employee's wages. To figure how much federal income tax to withhold from each wage payment, use the employee's Form W-4 (See Pub 15).
You must withhold Social Security and Medicare taxes from your employee's wages and you pay a matching amount yourself. The amount varies from year to year, so consult Publication 15 for the latest rates.
The federal unemployment tax is part of the federal and state program under the Federal Unemployment Tax Act (FUTA) that pays unemployment compensation to workers who lose their jobs. You report and pay FUTA tax separately from social security, Medicare and federal income tax. You pay FUTA tax only from your own funds. Employees do not pay this tax or have it withheld from their pay. You report FUTA on Form 940.
Hiring Employees
Have the employees you hire fill out Form I-9 and Form W-4.
Form I-9. You must verify that each new employee is legally eligible to work in the United States. Both you and the employee must complete the U.S. Citizenship and Immigration Services (USCIS) Form I-9, Employment Eligibility Verification. You can get the form from www.uscis.gov or call 800-375-5283 for more information.
Form W-4. Each employee must fill out Form W-4, Employee's Withholding Allowance Certificate. You will use the filing status and withholding allowances shown on this form to figure the amount of income tax to withhold from your employee's wages. You will find it at irs.gov.
Form W-2 Wage Reporting
After the calendar year is over, you must furnish copies of Form W-2, Wage and Tax Statement, to each employee whom you paid wages during the year by January 31st. You must also send copies to the Social Security Administration, although the preferred method is to electronically transmit them by January 31st. You may find more information on how to transmit them at ssa.gov.