How do I set up payroll taxes for employees?

I’m hiring my first employee and have no idea how payroll taxes work or what I need to set up to stay compliant with the IRS and state laws.

ARTICLE SUMMARY

Answer

When a business hires employees, it usually must register for payroll taxes and begin withholding and reporting certain taxes to federal and state agencies. Payroll taxes generally include federal income tax withholding, Social Security and Medicare taxes, and unemployment taxes.

Most employers also need payroll accounts with the IRS and state tax agencies before paying employees. Missing payroll tax filings or payments can lead to penalties, interest, and compliance problems.

What payroll tax registrations does a business need?

Before paying employees, many businesses need:

An EIN (Employer Identification Number) from the IRS.
State payroll tax registration accounts.
State unemployment insurance registration.
Workers’ compensation coverage in many states.
Employee tax forms, such as Form W-4 and Form I-9.

The business may also need to verify employee work eligibility and keep payroll records for tax reporting purposes.

What payroll taxes does an employer pay and report?

Employers are usually responsible for:

Withholding federal and state income taxes from employee paychecks.
Withholding Social Security and Medicare taxes.
Paying the employer portion of Social Security and Medicare taxes.
Paying federal and state unemployment taxes.
Filing payroll tax reports and annual employee tax forms.

Many small businesses use payroll software or payroll providers to help calculate taxes, make filings, and handle payment deadlines.

What to do next…

Apply for an EIN and state payroll tax accounts before hiring.
Collect completed employee tax and hiring forms.
Set up payroll software or a payroll service provider.
Track payroll deadlines for tax deposits and reporting forms.

What to consider in your specific situation

Payroll tax requirements can vary depending on the business location, workforce, and payroll setup.

The state where employees work and live.
Whether employees are full-time, part-time, or remote.
State payroll tax and unemployment rules.
Industry-specific labor or insurance requirements.
Payroll frequency and employee benefit plans.
Whether contractors or employees are being classified correctly.

Since every situation is different, consider getting more information through Rocket Copilot or an attorney review to move forward more confidently.

Explore more about business registration requirements

Explore more about initial tax setup or elections

Setting up your business taxes correctly from the start can help you avoid problems later. These questions explain common tax classifications, the taxes new businesses may owe, and how to set up payroll taxes if you hire employees.