What Are The Forms You Need for Your Employee’s Payroll?

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Setting up a new employee in your payroll system is more complicated than it looks. Mostly because if you file these forms incorrectly, you could receive an angry letter from the IRS. To avoid any potential brushes with the law, we created this checklist that includes what you’ll need to get your employee settled within the payroll system.

However, this may not be a complete list depending on your state or your employee’s status. You should always double-check before filing. 

W-2 vs W-4

A new employee will receive a W-4, which is a document that indicates their tax situation to the employer. The employee will fill out their personal and family information, as well as their income and how much money the IRS will withhold from their paycheck. In other circumstances, a W-2 will be issued if your employee is an independent contractor.

Some employers will classify their permanent employees as independent contractors to save 30% of their payroll costs but misclassifying your workers is a crime. Be sure you understand which section your employee falls under to avoid tax fraud. When you’re prepared to issue a W-2, use FormsPros to eliminate common errors and to quicken the hiring process.

I-9 Forms

The I-9 form verifies the identity and employment authorization of your workers. All U.S. employees must complete this form, even non-citizens because it confirms that your new employee can work in the United States. While issuing employment forms, ask for their address and SSN because both are required for filing at the end of the year.

EIN, State ID, State Unemployment ID

An Employer Identification Number (EIN) is an SSN for a business, which you can apply for online for free. You should already have one if you’re hiring employees, but be sure to get one if you don’t, as it’s needed to pay federal taxes. With the W-2 and W-4, you’ll be collecting payroll taxes from your employees, and you’ll insert that information on their forms.

Your business also needs a State or Local Tax ID because you’ll also need to pay your local government’s income taxes. Finally, a State Unemployment ID is a separate tax that pays into your state’s unemployment. These funds are then issued to your employees from the government if they ever need to go on unemployment.

Department of Labor Records

Although not completely necessary, the DOL will ask you to track your employee’s payroll information like wages earned during overtime and weekly hours worked. You should keep this information in case your business gets audited by the DOL. You can show the DOL your labor statistics as proof you’re following labor laws.

State Withholding Allowance Certificate

If the state you live in has a separate income tax, you’ll have to fill out a state withholding allowance that sets tax withholding. 32 states require this certificate, and 9 of those states only need a state withholding allowance certificate and not the W-4, like Alaska. However, states like Alabama and New Jersey need both. Follow this link for more information.

CM-921 or Worker’s Compensation ID Number

Accidents can happen anytime in the workplace, even in places where sitting down and typing is the norm. Depending on your state, you won’t need to register for a different ID number, but if you live in New Mexico, Wyoming, and Washington, you’ll have to apply. Without this number, you won’t be able to purchase worker’s compensation insurance.

Circular E or Publication 15

A business that has a separate organization handling their payroll won’t need a Circular E, but if you plan on doing payroll yourself, you’ll require this document as a reference. Though there isn’t any certificate or ID number required to handle your own payroll, you should reference this document frequently to ensure you avoid accidental fraud or audits.

About Mohit Tater

Mohit is the co-founder and editor of Entrepreneurship Life, a place where entrepreneurs, start-ups, and business owners can find wide ranging information, advice, resources, and tools for starting, running, and growing their businesses.