Set up Records for Withholding Taxes
You will want to keep records of your employment taxes for a minimum of four years. Keeping good records can also help you monitor the progress of your business, prepare financial statements, identify sources of receipts, keep track of deductible expenses, prepare your tax returns, and support items reported on tax returns.
Below are three types of withholding taxes you need for your business:
- Federal Income Tax Withholding
Every employee must provide an employer with a signed withholding exemption certificate (Form W-4) on or before the date of employment. The employer must then submit Form W-4 to the IRS. For specific information, read the IRS’ Employer’s Tax Guide .
- Federal Wage and Tax Statement
Every year, employers must report to the federal government wages paid and taxes withheld for each employee. This report is filed using Form W-2, wage and tax statement. Employers must complete a W-2 form for each employee who they pay a salary, wage or other compensation.
Employers must send Copy A of W-2 forms to the Social Security Administration by the last day of February to report wages and taxes of your employees for the previous calendar year. In addition, employers should send copies of W-2 forms to their employees by Jan. 31 of the year following the reporting period.
- State Taxes
Depending on the state where your employees are located, you may be required to withhold state income taxes.
Employee Eligibility Verification
Federal law requires employers to verify an employee’s eligibility to work in the United States. Employers must complete Form I-9 within the first 3 days of hiring a new employee. The employment eligibility verification requires employers to examine documents to confirm the employee’s citizenship or eligibility to work in the U.S. Employers can only request documentation specified on the I-9 form.
Employers do not need to submit the I-9 form with the federal government but are required to keep them on file for three years after the date of hire or one year after the date of the employee’s termination, whichever is later.
Employers can use information taken from the Form I-9 to electronically verify the employment eligibility of newly hired employees by registering with E-Verify.
Visit the U.S. Immigration and Customs Enforcement agency’s I-9 website to download the form.
Register with Your State’s New Hire Reporting Program
All employers are required to report newly hired and re-hired employees to a state directory within 20 days of their hire or rehire date.
Workers’ Compensation Insurance
All businesses with employees are required to carry workers’ compensation insurance coverage through a commercial carrier, on a self-insured basis or through their state’s Workers’ Compensation Insurance program.
Post Required Notices
Employers are required to display certain posters in the workplace that inform employees of their rights and employer responsibilities under labor laws.
File Your Taxes
Generally, employers who pay wages subject to income tax withholding, Social Security and Medicare taxes must file IRS Form 941, Employer’s Quarterly Federal Tax Return.
In addition to requirements for keeping payroll records of your employees for tax purposes, certain federal employment laws also require you to keep records about your employees. The following sites provide more information about federal reporting requirements:
- Tax Recordkeeping Guidance
- Labor Recordkeeping Requirements
- Occupational Safety and Health Act Compliance
- Employment Law Guide (employee benefits chapter)
- Apply Standards that Protect Employee Rights
Complying with standards for employee rights in regards to equal opportunity and fair labor standards is a requirement. Following statutes and regulations for minimum wage, overtime, and child labor will help you avoid error and a lawsuit. See the Department of Labor’s Employment Law Guide for up-to-date information on these statutes and regulations.