Hiring Your First Employee? Five Important Tax Tips
Small business growth is exciting. The transition from being a sole operator to now hiring your first employee feels like and is a major accomplishment. However, just as with all other business processes, it does take proper planning, particularly when it comes to taxes. Learn what steps you should take to protect your new employee and your business.
The first step to ensure your taxes are in order is to collect the necessary tax documents from the employee. These documents include both a valid social security number and a completed IRS W-D, which is a withholding allowance certificate. The social security number ensures the employees' taxes are applied appropriately and the W-4 outlines the employee's tax obligations.
As an employer, it is your responsibility to withhold taxes from your new employee's pay before you issue it to them. The amount you withhold will be based on the federal tax structure and any state guidelines, as well as based on the information detailed on the W-4 form. Again, it is your responsibility to withhold these taxes and to ensure that the withheld amount is accurate.
The process of withholding taxes from your first employee is only the first step. You are also required to make these payments to both the federal and state tax agencies. Generally, these payments are due quarterly, but you should contact each agency to determine the required timeline. If you do not pay the taxes that you withheld accurately, you could face financial and criminal penalties.
Undoubtedly, a great deal of effort must go into employee taxes. However, the transition to a business with employees can also change your business tax requirements. For example, with FICA, federal insurance contributions act, taxes, you are required to pay a portion of the employees' share, in addition to your regular business taxes. To help with this step, it is always best to speak with a tax consultant.
Be certain to keep all tax records for your new employee, from the initial W-4 form that you have the employee complete to the quarterly tax withholding payments that you make on the employees' behalf. These records will be necessary when it is time to file your taxes and if there is ever a dispute about the taxes you paid.
Taxes can be a complicated matter, especially as your business grows. To learn more about the tax process, speak with a tax consultant for assistance.