It’s normal for new business owners to feel daunted by payroll. But knowing basic information about various payroll forms and tax requirements can help you set up an effective payroll system. Here are some of the most frequently asked questions about payroll.
6 Frequently Asked Questions About Payroll
What is an EIN?
An EIN, or employer identification number, is a unique 9-digit number the IRS uses to track and identify your business. Like a Social Security number, it’s featured on all federal and state tax documents, including payroll documents. Unlike a Social Security number, your EIN is not sensitive information. You can register for one through the IRS.
What are I-9 and W-4 forms?
I-9s and W-4s are forms that employees must complete to work for your business legally. An I-9 form, also known as Employment Eligibility Verification, establishes whether someone is legally eligible to work in the United States. A W-4 form, or an Employee Withholding Allowance Certificate, determines the amount of taxes to withhold from an employee’s wage for federal income tax.
What taxes should I withhold from payroll?
You are required to withhold taxes for federal income, Social Security, and Medicare. You’ll also need to withhold local and state income taxes, which vary depending on location. The amount of taxes being withheld is calculated based on your employee’s W-4 form and the IRS guidelines laid out in Publication 15.
What are W-2 and 1099 forms?
A W-2 form is a document that lists an employee’s total wages for the year as well as all taxes withheld. A 1099 form also states a worker’s wages, but it’s issued for workers who do not withhold taxes from their earnings, such as freelancers and subcontractors. As an employer, you must issue W-2s and 1099s to employees no later than January 31 following the most recent tax year.
How long should I keep payroll records?
Holding onto payroll documents is a legal requirement. Under the Fair Standards Labor Act, you must keep payroll records for at least three years. The IRS mandates that you retain all documents regarding employment taxes for four years after you’ve filed for the fourth quarter of the year.
What is the best way to do payroll?
Employers have multiple options for processing payroll. The least expensive and most time-consuming way is to do it yourself manually. But you can also use payroll software or outsource the job to a specialist, which will save you time and stress.
Donna Sellers CPA in Brownfield, TX, can take all your payroll concerns off your shoulders. Using the latest payroll software, she manages everything from check processing to employee attendance, so you can focus on running a successful business. Call (806) 637-8556 to schedule an appointment or learn more about payroll services on her website.