Payroll Frequently Asked Questions

What is an EIN?

EIN stands for Employer Identification Number, a unique identifier assigned by the Internal Revenue Service (IRS) to businesses for tax-related purposes. This number allows businesses to differentiate themselves on various tax documents just like an individual's Social Security number. An EIN serves as a taxpayer identification number, enabling employers to comply with legal obligations and accurately report their business activities to the IRS. If you're starting a business and plan to hire employees, it is essential to apply for an EIN to ensure proper documentation and taxation procedures.

What is an I-9 and a W-4 form?

Employers use Form I-9 to verify the identity and employment authorization of individuals who are joining their workforce. This crucial document ensures that employers are in compliance with immigration laws and that their employees are eligible to work in the United States. It is a mandatory requirement for every U.S. employer to have a completed Form I-9 for each worker they hire, regardless of their citizenship status.
When filling out the Form I-9, employees are required to provide specific documents as evidence of their identity and eligibility to work. These documents can include a driver's license, birth certificate, passport, or other valid forms of identification. By collecting and reviewing these documents, employers can authenticate the identity and work authorization of their employees, promoting a legal and secure work environment.
In addition to Form I-9, employees are also required to complete IRS Form W-4, which determines the amount of federal income tax withheld from their gross pay. This form is essential for employers to accurately calculate and remit the appropriate tax amounts to the Internal Revenue Service (IRS) on behalf of their employees. Furthermore, individuals may also need to complete similar forms for state income tax withholding, as income tax regulations can vary among different states.
Ensuring compliance with both federal and state tax withholding requirements is crucial not only for the employer but also for the employee. It helps prevent any potential issues with tax payments and ensures that the correct amount of taxes is withheld from an employee's paycheck, avoiding any surprises during tax season.
These essential forms, including Form I-9 and IRS Form W-4, play a vital role in maintaining a transparent and organized employment process. By adhering to these requirements, employers safeguard their organization's integrity while providing employees with the necessary information and resources for tax compliance.

What taxes do I need to withhold from an employee’s paycheck?

You must withhold Federal income, Social Security, and Medicare taxes from your employees' wages. These withholdings help fund various government programs and benefits. In addition to the Federal taxes, you may also need to withhold state and local income taxes, depending on the laws in your state. The amount of Federal income tax to be withheld is determined by your employees' Form W-4 and the tax brackets outlined in Publication 15.
When it comes to Social Security and Medicare taxes, there are specific rates and rules to follow. For 2020, the combined Social Security rate is 6.2 percent, and the Medicare rate is 1.45 percent, making the total FICA tax rate 7.65 percent. This rate applies to taxable wages paid up to the applicable threshold.
In addition to withholding taxes, as an employer, you are also responsible for making a matching employer contribution of 7.65 percent for each employee. This means that in total, the FICA tax rate for both the employer and employee is 15.3 percent.
It's important to note that the Social Security tax should be withheld until the employee reaches the Social Security wage base. However, there is no wage base for Medicare, and an additional Medicare tax may apply to certain high-wage earners.
Understanding and properly calculating these tax withholdings is crucial for maintaining compliance with the law and ensuring accurate payroll processing. If you have any questions or need assistance with tax calculations, don't hesitate to reach out to Faithful Bookkeeping Service. Our expert team is here to help you navigate the complexities of payroll taxes.

What forms do employees have to fill out before working?

All employees, regardless of their position within the company, are required to diligently fill out and submit both Form W-4 and Form I-9, otherwise known as the Employment Eligibility Verification form, prior to their official commencement of work. These important forms ensure that the company remains compliant with the necessary legal requirements and that the employee's eligibility to work in the country is duly verified. In addition to these fundamental forms, there are other vital documents that need to be completed, such as the direct deposit form, enabling the seamless transfer of wages to the employee's designated bank account. Moreover, depending on the specific policies and procedures established by the organization, additional company-specific paperwork may also be distributed, reinforcing the essential guidelines and expectations set forth by the company. Form W-4 is particularly significant as it allows the company to accurately determine the appropriate amount to withhold from an employee's wages for federal income tax, guaranteeing compliance with tax regulations and ensuring the accurate calculation of each individual's tax liability.

How long do I need to keep payroll records?

As a small business employer, hanging onto records is not only essential but also a regulatory requirement. According to the Fair Labor Standards Act (FLSA), it is necessary to maintain all payroll records for a minimum of three years. This encompasses vital information related to employee wages, overtime, deductions, and other payroll-related details. Additionally, the Internal Revenue Service (IRS) mandates the retention of employment tax records for four years after filing the fourth quarter of each year. These records encompass tax withholdings, Social Security contributions, Medicare taxes, and more. By adhering to these record-keeping obligations, small business employers ensure compliance with government regulations and maintain a comprehensive and accurate financial history.

When do I need to file W-2s and 1099’s?

A W-2 is an important document that is issued to employees for the purpose of reporting various financial details. This includes not only the gross wages that the employee has earned but also the tax withholdings and other types of withholdings from their gross pay. It is worth noting that if an employee has wages withheld to cover expenses such as insurance premiums or contributions to a retirement plan, these amounts are also reported on the W-2 form.
In order to comply with IRS regulations, employers are required to mail W-2 forms to their workers by no later than January 31st of the year that follows the end of the tax year. This ensures that employees have adequate time to review and file their taxes accurately and within the designated timeframe.
Another important document that businesses must issue is the 1099-MISC form. This form is necessary if the firm has paid a vendor at least $600 for a product or service. It is important to note that freelance workers are considered vendors, and as such, they too are issued a 1099-MISC form. Just like with the W-2 form, the IRS requires employers to mail 1099-MISC forms to vendors no later than January 31st of the year that follows the end of the tax year.
By adhering to these IRS deadlines and regulations, employers can ensure that their employees and vendors have the necessary information to accurately report their income and complete their tax obligations. It is vital for businesses to prioritize proper documentation and timely distribution of these forms to maintain legal compliance and foster a transparent financial environment.