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.

 

Employee’s Social Security Number (SSN)

You are required to get each employee’s name and Social Security number (SSN) and to enter them on Form W-2. (This requirement also applies to resident and nonresident alien employees.)

You should ask your employee to show you his or her social security card. The employee may show the card if it is available. You may, but are not required to, photocopy the Social Security card if the employee provides it. Record each new employee’s name and social security number from his or her social security card. Any employee without a Social Security card should apply for one using Form SS-5, Application for Social Security Card PDF.

Do not accept an ITIN in place of an SSN for employee identification or for work. An ITIN is only available to resident and nonresident aliens who are not eligible for U.S. employment and need identification for other tax purposes. You can identify an ITIN because it is a 9-digit number, beginning with the number “9” and is formatted like an SSN (NNN-NN-NNN).

Note: An individual with an ITIN who later becomes eligible to work in the United States must obtain an SSN.

 

 

Employee’s Withholding

To know how much income tax to withhold from employees’ wages, you should have a Form W-4, Employee’s Withholding Certificate, on file for each employee. Ask all new employees to give you a signed Form W-4 when they start work. Make the form effective with the first wage payment. If employees claim exemption from income tax withholding, they must indicate this on their W-4. The amount of income tax withholding must be based on filing status and withholding adjustments as indicated on the form. If a new employee does not give you a completed Form W-4, withhold tax as if he or she is single. Additional withholding may be required on wages paid to non-resident aliens.

A Form W-4 remains in effect until the employee gives you a new one. If employees claim exemption from income tax withholding, they must give you a new Form W-4 each year. If an employee gives you a Form W-4 that replaces an existing Form W-4, begin withholding no later than the start of the first payroll period ending on, or after the 30th day, from the date you received the replacement Form W-4.

You may also refer your employees to the tax withholding estimator. Remember that this application is to help employees to ensure that they do not have too much or too little income tax withheld from their pay. It is not a replacement for Form W-4, but most people will find it more accurate and easier to use than the worksheets that accompany Form W-4. They may use the results of this program to help them complete a new Form W-4, which they will submit to their employer. Special rules may apply to agricultural employers.

 

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