Are You a Small Business Hiring Employees? Do It Right the First Time

Are you a new business owner, a small business owner, or a solopreneur planning to hire employees? Perhaps you’re all confused about where to begin? How much taxes should you withhold from their wages? What are you responsible for as an employer? Let me help you discover the fundamentals.

The three basic forms you need to have your new employees complete are:

* Federal Form W-4, so they can indicate their filing status and the number of exemptions they want withheld from their paycheck

* Form I-9 to verify their identity (be sure to keep a copy of their government or State issued ID on file) and

* Your respective State form W-4 (check with your state revenue department). For example, in New York, employees have to complete Form IT-2104 to indicate their filing status and the number of exemptions they want withheld at the State level.

Check with the Department of Labor in your state to find how to register as an Employer. Once registered you will be required to report all new hires. Find out if there are any additional requirements in regards to Unemployment Insurance, etc.

The standard taxes that should be withheld from each paycheck are:

* Federal Income Tax

* Social Security (for 2011 this rate is 4.2% of the first %106,800 of the employee’s earnings). The employer portion is 6.2% and is payable every quarter.

* Medicare Tax (1.4% of the employees earnings. The employer portion is also 1.4% and is payable every quarter.

* State Income Tax

* Local Income Tax if it applies. For example, in NYC, employees are required to pay local income taxes.

* If it applies, you may also be required to withhold UI (Unemployment Insurance) and/or SDI (State Disability Insurance).

Quarterly Filings – file Federal Form 941 with the IRS and check with your State Department of Revenue to find out which forms you are required to file every quarter.

Annually – file Federal Form 940 with the IRS and file Federal Form W-2 and transmittal form W-3 with Social Security and be sure to issue your employee(s) their copies of form W-2 no later than January 31 of the following year.

It is important that you keep adequate records to remain in compliance with the IRS plus you will need this information at tax time. It would be to your advantage to set up an employee database.

Resources: You may want to download the IRS Employer’s Tax Guide, Publication 15 from the IRS website.

Source by Ktasha Hardge