Every business needs to setup a payroll system to operate effectively. Without one you open yourself to audits by the IRS and they can be a very unforgiving organization. They dont listen to excuses. So either hire a person to exclusively handle payroll or hire an outside agency because there is a lot of paperwork involved here. Following are some directions to follow:
- Fill out the IRS form SS-4 to receive your employer identification number. Also apply for the state and local identification numbers as required by them in your region.
- Make sure to distinguish between full time employees and those that work with you on contractual basis. The reason for this is because you dont withhold taxes on non-full time employees pay.
- According to IRS regulations every new employee must file a W-4 form. Any employee wishing to change any information about them concerning their marital status or dependents must file a new W-4. W-4 provides you the employees social security number and how much income tax you need to withhold from their paychecks. If a W-4 doesnt exist for an employee, they cant claim any exemptions and must pay the full income tax.
- You must have a pay period that complies with state and federal regulations. Many states have their own pay periods set. Find out about this from your state or local office.
- You must practice good record keeping skills. For each employee you must have their name, address, social security number, how much they get paid each time and when, how much you withhold in taxes, copies of their W-4s, and copies of any W-2s that came back to you because they couldnt find the person or the address was wrong.
- For yourself, keep a record of when you filed your returns and their copies along with all the information relating to all the tax deposits that you have been making.
- Check with your state regulations concerning sick days, vacation days, and maternity leaves. You need to find out if you have a legal obligation to pay them during these times or not.
- All states except Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming have a personal income tax. You need to find out how much you need to withhold in your state if its not listed above.
Remember the IRS is looking for the opportunity to bust you if you make a mistake so try not to. Always double check your figures and ask someone else to do it also just in case. Always regularly check back with the IRS. They change their regulations each year and expect you to know them when you file your returns.