Bringing on employees doesn’t make you an official employer. You must sign up for accounts with the IRS and your state to legally become an employer. Otherwise, you will violate employment laws, leading to hefty penalties. Make sure you know your employer registration requirements before hiring employees.
Employer registration
You must register as an employer and acquire several account numbers for tax purposes. Keep account numbers in a safe location to prevent misplacing them.
1. EIN
If you have employees, you are required to have an Employer Identification Number (EIN). You must apply for EIN with the IRS.
An EIN is a type of taxpayer identification number that helps the IRS identify your business on tax returns. It is a nine-digit number and works similarly to a Social Security number. You must include your business’s EIN on documents like Form W-2 and Form 941.
This registration is free. You can apply for an EIN online to instantly receive your tax registration number. Or, you can fax or mail Form SS-4, Application for Employer Identification Number, to the IRS. These methods take longer than filing online, and you may not receive your number for a few weeks.
When you have employees and apply for an EIN, you must indicate that you will have federal tax payments. This will automatically pre-enroll you in EFTPS.
EFTPS stands for Electronic Federal Tax Payment System. This is a free service that lets you pay employment taxes conveniently online or over the phone. To continue signing up for EFTPS, you will need your bank information, as well as your name and address. It is highly suggested that you sign up for EFTPS to streamline some of your employer responsibilities.
2. SUTA tax
As an employer, you must contribute state unemployment (SUTA) tax for each employee you have. Paying into your state’s unemployment program guarantees employees will receive unemployment benefits if they become unemployed through no fault of their own.
State unemployment tax rates differ. Employers pay different rates depending on factors like their industries, how many former employees received unemployment benefits, and how long you have been in business.
Your state will assign you a rate when you become an employer. Your new employer rate will change once you have gained more experience.
Sign up for a SUTA tax account to receive your new employer rate. The process for employer registration differs from state to state, so you will need to check your state’s government websites for more information.
When you register with your state, you will obtain an employer account number as well as your contribution rate. You can use your account to submit state forms to report your SUTA tax liability and make payments.
Your state might refer to state unemployment tax as something other than SUTA. Another popular name for unemployment tax is State Unemployment Insurance, or SUI.
3. New hire reporting
When you hire an employee, you need to report them to your state’s new hire reporting program within a certain time frame. Reporting new hires is state-mandated. Generally, you must report new employees within 20 days of hire, but each state sets its own requirements.
States use the new hire reporting information to collect child support, spot fraudulent recipients of unemployment insurance, and stop unlawful welfare assistance. Failing to report new hires will result in monetary or civil penalties.
To report new employees, you need to first establish a new hire reporting account. You can do this by contacting your state and registering for an account. To register, you will need general information like your business’s name, Employer Identification Number, and address. Check with your state for more information.
4. Local tax
Depending on your business locality, you may need to collect local taxes from employee wages. If you need to collect and remit local taxes, you must register for local and school tax accounts. Contact your local tax agency for more information.
5. Workers’ compensation insurance
In most states, you are required to register for workers’ compensation insurance when you bring on your first employee. Workers’ compensation insurance doles out wages and medical benefits if employees are injured on the job.
Some states require you to get workers’ compensation through your state government. Other states give you the option of choosing where to obtain insurance, such as private providers. Check with your state for more information.
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This article has been updated from its original publication date of June 20, 2018.
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