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The Process of Hiring Employees

September 25, 2017

Hiring employees becomes one of the most challenging steps of a business owner. The paperwork involve to register to have access to report employee taxes along with the different deadlines can become overwhelming for those that take care of their books in house.

So what do you really need to hire an employee? Where do you register? When do you need to report and pay?  Below I will try to explain in a basic form the steps necessary to you as an employer to collect and report payroll taxes in the state of Texas.

What you need from your employee:

  1. IRS Form W-4, Withholding Allowance Certificate.

Have each employee fill out the IRS form W-4. In this form, employees tell you how many allowances they are claiming for tax purposes so that you can withhold the correct amount of tax from their paychecks. (You don’t have to file the form with the IRS.) You can find this form at www.irs.gov. You should ask employees to fill out a new W-4 if they have any changes in allowances.

  1. Form I-9, Employment Eligibility Verification for each new employee.

U.S. Citizenship and Immigration Services (USCIS) requires employers to use this form to verify that every employee they hire is eligible to work in the United States. (You don’t have to file this form with the USCIS, but you must keep it in your files for three years and make it available for inspection by officials of Immigration and Customs Enforcement, known as ICE.) You can obtain the form online at www.uscis.gov.

With the information provided by your employee in the form W-4, you will be responsible for the following:

  1. Employer identification number

When you hire employees, you must get an employer identification number (EIN) to use on tax returns and other documents you submit to the IRS. To get an EIN, you must file IRS Form SS-4 you can do it online by visiting the IRS website at www.irs.gov.

  1. Texas Attorney General – New hiring reporting program

Report each new and re-hired employee within the first 20 days of employment to the Texas Attorney General. The new hire reporting program requires employers to report information on all new employees for the purpose of locating parents who owe child support.

  1. IRS – Tax Reporting Form 941 quarterly or 944 annually.

Form 941 (Employer’s Quarterly Federal Tax Return): Return reporting federal income tax withheld, and employer and employee shares of FICA taxes (Federal Insurance Contributions Act (FICA) to fund Social Security and Medicare) The return is due the last day of the month following the end of the quarter.

Form 944 (Employer’s Annual Federal Tax Return): The return is due January 31 of the following year. Remember you don’t get to pick when to file, the IRS has specific rules on reporting and deposit of FICA taxes.

  1. File IRS Form 940 each year for Federal Unemployment Taxes.
    1. You must file IRS Form 940 to report your federal unemployment tax for any year in which you paid wages of $1,500 or more in any quarter or for any year in which an employee worked for you in any 20 or more different weeks of the year. You can find the form at www.irs.gov.
  2. Texas Workforce Commission – State Unemployment Tax

The Unemployment Tax program collects wage information and unemployment taxes from employers subject to the Texas Unemployment Compensation Act (TUCA). The taxes support the state’s Unemployment Compensation Fund, a reserve from which unemployment benefits are paid to eligible workers who are unemployed through no fault of their own. Unemployment taxes are not deducted from employee wages. You pay unemployment tax on the first $9,000 that each employee earns during the calendar year. Your taxable wages are the sum of the wages you pay up to $9,000 per employee per year.

Consider visiting with your accountant and/or bookkeeper for more details and specifics on each employer’s situation. Please feel free to contact us with any questions you might have. Over the years the SBDC has helped many small business owners with the process of hiring employees.

“Business Tips” was written by Adriana B. Havins, Senior Certified Business Advisor IV, of Angelo State University’s Small Business Development Center.  For more information on the topic of this article or the services of the ASU · SBDC, contact her at Adriana.Balcorta@angelo.edu.