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How To Hire Your First Employee
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Article 7: Preparing For Your New Employee
Your first step in preparation for your new hire is to obtain an Employer Identification Number (EIN) if you’re a sole proprietor and you’ve been using your Social Security number as your tax ID number. (You’ve already got an EIN if you’re incorporated or have formed a partnership.) Use IRS Form SS-4 to apply for an EIN, or see IRS Publications 1635 and 583 for more details.
Your new employee will need to fill out INS Form I-9 and IRS Form W-4. Use the W-4 form along with the tax tables in IRS publication Circular E to determine how much income tax to withhold from the employee’s paycheck. You can obtain all IRS forms by calling 1-800-829-FORM or at www.irs.gov/businesses/small/index.html.
As an employer, you’re required to withhold and deposit three different types of federal taxes: income tax:
Social Security and Medicare, known as FICA Federal unemployment tax, known as FUTA
You must also pay the employer’s share of FICA for each employee, which is 6.2 percent of wages up to $94,200 for Social Security and 1.45 percent of wages (with no income limit) for Medicare. Both the employee and employer pay the same amount of FICA.
If you owe less than $1,000 in combined income and FICA taxes per quarter, you can make tax deposits quarterly using IRS Form 941. If you owe more than this, you must use federal tax deposit coupons (using Form 8109) and make deposits at the bank each pay period.
FUTA is a direct expense to you, the employer, if you pay wages of at least $1,500 a quarter or have at least one employee in each of 20 different weeks during the year. It’s a flat tax on the first $7,000 of wages per employee that must be paid quarterly and filed annually via IRS Form 940. Other federal requirements you need to remember are:
In addition to these federal requirements, you’ll have state requirements, including the payment of state unemployment taxes and purchase of workers’ compensation insurance (more direct costs to the employer). Contact your local Employment Security office to get a state employer number and arrange to receive all the necessary state forms.
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