LUTZ BUSINESS INSIGHTS
Onboarding Your First Employee? Your New Tax Responsibilities
KRISTEN CURTIS, CLIENT ACCOUNTING SERVICES MANAGER
Your first hire represents a real milestone in your company’s status: You’re about to become an employer. You probably feel proud about your new role, but you may also be apprehensive about staying compliant with state and federal employment policies governing critical issues like payroll.
A Simple Start
If your first worker is an independent contractor, your compensation-related tasks will be few. If you do not have an Employee Identification Number (EIN), you must obtain one. You can apply for one online here and receive it immediately. If you’d prefer to do this offline, you can print and complete the Form SS-4 and submit it via the U.S. Mail or fax (instructions are here).
You’re not responsible for withholding and submitting payroll taxes for independent contract workers, but you’ll still be reporting their income to them and the IRS every January on a Form 1099-MISC (if they received at least $600 from you). Before you pay them the first time, have them complete a Form W-9 for you; this will request their Taxpayer Identification Number (TIN).
Of course, it gets more complicated when you hire someone who will be considered an employee of your company. You must first verify the individual is legally eligible to work in the United States. He or she will need to complete a Form I-9. You, too, will have to sign this document after you’ve determined your new staff member’s status by examining their personal identification (a U.S. Passport, driver’s license and birth certificate, etc.).
If you’d prefer, you can use E-Verify, an online tool provided by U.S. Citizen and Immigration Services. You should have a response in a matter of seconds.
You’ve probably filled out a W-4 form yourself if you’ve ever been an employee of a business; it helps you determine how much to withhold in federal and state income taxes each pay period. Your new hire will need to complete a W-4 before you can do your first payroll run. Remind your new employee that a new W-4 should be submitted in the event of a major life change.
State and Local, Too
If you live and work in a state that collects state income taxes, you’ll have to withhold and submit those for your employee. If you don’t know what’s required in your specific geographic region, you can find your state’s informational web page here. You must also report new hires to your state within 20 days, and establish unemployment insurance.
Preparing for Payroll
Payroll may be one of the most complex tasks of your company’s accounting procedures. It must be set up and executed precisely every time, or you risk penalties and fines. We can help with proper setup, either by introducing you to a do-it-yourself payroll application or providing guidance to ensure your employer duties are met.
ABOUT THE AUTHOR
KRISTEN CURTIS + CLIENT ACCOUNTING SERVICES MANAGER
Kristen Curtis joined the firm in 2000 and serves as a Client Accounting Services Manager. She has significant experience in small business accounting and advisory services; new business consulting; and software implementation and training.
AREAS OF FOCUS
AFFILIATIONS AND CREDENTIALS
- American Institute of Certified Public Accountants, Member
- Nebraska Society of Certified Public Accountants, Member
- Certified Public Accountant
- BSBA in Accounting, Iowa State University, Ames, IA
- Presbyterian Church of the Cross, Session Member, Christian Education, Committee Member
- P.E.O., Philanthropic Educational Organization, Member
- Hiring an Independent Contractor? Your Responsibilities
- 5 Common Payroll Mistakes and How to Avoid Them
- Onboarding Your First Employee? Your New Tax Responsibilities
- Why You Should Automate Expense Reporting, and How to Do It
- Service-Based Business? How QuickBooks Helps You Track Time
- 4 Ways QuickBooks Helps You Accelerate Receivables
- Are You Following Best Practices for Dealing With Form 1099-Misc?
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