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Complete the application (Form SS-4) which may be obtained from any IRS or
Social Security office. The identification number you receive is important
because it must be shown on your tax returns and your earning reports (which
will be filed on a monthly basis). After you register for your employer ID
number (TIN/FIN), you should receive a booklet in the mail explaining the
procedures for filing your taxes and providing you with Federal Tax Deposit
Coupons (Form 8109).
Each pay period, you withhold a certain amount from your employee's earnings
to cover federal taxes (including Medicare and Social Security*). In addition,
you as an employer must match the amount withheld (I told you having employees
could be hard!). The total of these taxes must be paid each month to any
commercial bank that does federal money transfers by the 15th of the month for
the month prior (i.e. you will pay taxes for the month of January by February
15th). The coupons that I mentioned above (Form 8109) will be used to make your
payments each month.
You must let the IRS know that you have, in fact,
paid your monthly employer taxes. This is done by filing Form 941 (Employer's
Quarterly Federal Tax Return) directly to the IRS. As the name suggests, you
file this on a quarterly basis with the form being due by the last day of the
month following the end of the quarter (confusing!) Refer to the following
In addition, the Federal government also requires that employers
(only) pay a Federal Unemployment Tax (FUTA). This usually
does not amount to that much money, but the rules and regulations make things
more confusing. FUTA is paid on the first $7,000 of an employee's salary. You
pay FUTA on a quarterly basis (to the bank again, according to the schedule
above) only if the tax owed is $100 or more. If your deposit is less than $100,
you can carry it over to the next quarter. This "carrying over" can actually be
done for the whole year if you remain under $100. In this case, you must pay
the total FUTA tax for the year by January 31 of the following year. The
accompanying Form 940 (Employer's Annual Federal Unemployment Tax Return) is
also due by January 31. If you have paid your total tax before January 31(and
it is received by this date), you are allowed to file Form 940 up until February
10. Note that your State government (see below) will also charge an
Unemployment Tax and so we are not done with this topic quite yet.
Medicare and Social Security taxes combined are referred to as
FICA (Federal Insurance Contributions Act).
On a personal note: the process of filing federal taxes is
confusing. Don't worry if you mess up. While working at a previous job, I was responsible for the office
payroll. I paid the office's federal employer tax on a quarterly basis.
hired my first employee for my own business, I assumed that the same rules
applied. To my surprise, I received a notification from the
IRS one day telling me that I owed several hundred dollars for each of the
months that my taxes were not paid. Each month? I was surprised to learn that
the payment was due monthly. They notified me of my lapse seven months into
As you can imagine that the amount I owed was steep. I did the only thing I
could as a small business owner with a limited budget. I contacted the IRS,
admitted my mistake and begged for forgiveness. They fees were waived!
be too hard on yourself if you make tax mistakes. We all do it at some time or
another. And if you do make a mistake, let the IRS know. They are more
forgiving than you might imagine.
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