In our latest blog post series about Business Taxes, we’ve been discussing the different business taxes associated with having employees, also known as payroll and employment taxes. Payroll taxes and employment taxes are required if your business has employees, but the type of employees you hire plays a large factor in the tax responsibilities and different IRS forms your business will be required to handle.
In our last two posts, Business Taxes: 1099 Independent Contractors and Business Taxes: Form 1099-NEC, we discussed the different requirements and forms for businesses that employ 1099 independent contractors. If your business has paid over $600 to another business for services, you’ll want to check out those last posts for IRS filing information!
In this post, as well as several of the upcoming ones, we’ll discuss the different requirements, paperwork and tax responsibilities the IRS requires of a business employing W-2 employees.
Employment Taxes: Hiring W-2 Employees
When we started off this Business Tax series with our first post, Business Taxes: Employment Taxes, we noted the IRS’s stipulaitons regarding businesses with employees. As of January 31st, 2021, according to the IRS Page Businesses with Employees, “as a business owner, when another person performs work for you, you must first correctly classify that person as an independent contractor or employee.
“If the person is classified as an employee you must have an Employer Identification Number (EIN). Your tax responsibilities include withholding, depositing, reporting, and paying employment taxes. You must also give certain forms to your employees, they must give certain forms to you, and you must send certain forms to the IRS and SSA.”
As you can see, hiring an employee comes with a lot of different responsibilities, including “withholding, depositing, reporting, and paying employment taxes.” But before we dive deeper into the intricacies of payroll and employment taxes, let’s first look at the very first requirement a business must meet in order to hire employees: having an Employer Identification Number (EIN).
Employment Identification Number (EIN)
As of January 31st, 2021, according to the IRS Page Employer ID Numbers, “an Employer Identification Number (EIN) is also known as a Federal Tax Identification Number, and is used to identify a business entity. Generally, businesses need an EIN. You may apply for an EIN in various ways, and now you may apply online. This is a free service offered by the Internal Revenue Service and you can get your EIN immediately. You must check with your state to make sure you need a state number or charter.”
Like the excerpt from the IRS says, businesses generally need an EIN, but businesses that hire employees definitely require one. You can follow the link in the quoted text above to get started with an EIN application for your business if you don’t already have one. Like the excerpt says, check your state’s individual requirements before you get started.
In our next post, we’ll dive deeper into the IRS requirements, paperwork and business taxes associated with hiring W-2 employees. Check back soon!
And remember, if your business needs any help with payroll taxes, employment taxes or any type of business tax resolution, our team of highly trained tax resolution specialists are available to help! New clients can call (844) 582-3323 for a free consultation and transcript analysis.
Sources:
https://www.irs.gov/businesses/small-businesses-self-employed/businesses-with-employees
https://www.irs.gov/businesses/small-businesses-self-employed/employer-id-numbers