1. Start with IRS form W4 and the Labor Department's form I-9. Form I-9
requires that you take a look at official documents to insure that the
employee is allowed to work in the US. Passports, drivers licenses, birth
certificates, and social security cards are the types of documents you must
review. I like to exercise extreme caution and keep a photocopy of these
important records in my payroll files.
2. Request an employer identification number from IRS by filing form SS-4.
3. Check your state tax filing requirements. This presents yet another
complication. We may already be confused by the 2 different filing
requirements at IRS, or $1,100 per year for the purpose of Social Security
and Medicare taxes, but $1,000 per quarter for federal unemployment taxes.
In addition, you may face different filing limits for state income taxes,
state unemployment taxes, and required state disability and workers
compensation insurance policies. Thankfully, NY State has recently
consolidated unemployment and income tax reporting. However, one of my best
clients recently forwarded me a notice from the "Workers Compensation Board"
stating there were different requirements depending upon the number of
hours worked by his domestic employee.
4. After checking your state requirements the next step is to arrange for
the appropriate insurance. In most cases, NY State requires both disability
and Workers Compensation policies.
5. Withhold the proper amount of Social Security and Medicare taxes. The
combined rate is 15.3%. You can split this with your employee or you can pay
it all. You are not required to withhold federal or NY State income tax,
but you can if you and your employee want to.
6. Adjust your estimated taxes or withholding tax to reflect the additional
payroll taxes you now will owe to Uncle Sam. Unless you are self-employed
and have other employees, the social security and Medicare taxes will become
part of your income tax liability for this year. You can be penalized if
you don't pay enough estimated tax before each quarterly due date.
7. File the appropriate returns with your state or local tax departments. NY
State requires quarterly reports.
8. File form W-2 to report the employees’ wages for the year. The employee
copies are due by January 31 and the government copies are due by the end of
February.
9. File Schedule H with your income tax return. Unless you are self-employed
, you must report household employment taxes with your 1040.
