Business Taxes: Hiring W-2 Employees

Businesses are required to pay certain taxes and file certain paperwork with the IRS if they have employees. However, the types of paperwork and tax responsibilities required of a business with employees varies depending on the type of employee they employ. In previous blog posts in our Business Taxes series, we’ve discussed the different forms and tax responsibilities required of a business that employs 1099 independent contractors. To learn more, view our previous posts, Business Taxes: 1099 Independent Contractors and Business Taxes: Form 1099-NEC.

More recently, we’ve begun to discuss the different requirements the IRS has for businesses that employ W-2 employees. As we shared in our most recent post, Business Taxes: Employment Identification Number, the very first thing the IRS requires from a business in order to hire W-2 employees is an EIN. The EIN, which stands for Employment Identification Number, can be applied for for free through the IRS site. Check out the last blog post for more information: Business Taxes: Employment Identification Number.

Today, we’ll discuss the next things the IRS requires in order for a business to hire employees.

Employment Taxes and Employment Requirements

As of January 31st, 2021, according to the IRS Page Hiring Employees, “if you hire employees there is information that you need to secure for your records and forms that you must complete.

• Eligibility to Work in the United States
• Employee’s Social Security Number (SSN)
• Employee’s Withholding”

Eligibility to Work in the United States

Regarding the first bullet, Eligibility to Work in the United States, the IRS Page Hiring Employees goes on to say that employers “must verify that each new employee is legally eligible to work in the United States. Have the employees you hire fill out Form I-9, Employment Eligibility Verification PDF.”

This is an important piece of information to take note of. It is the employer’s responsibility to verify that their employees are legally eligible to work in the United States. In addition to having new employees fill out Form I-9, you are also required to record every new employee’s social security number, which can help in the verification process.

Employee’s Social Security Number (SSN)

As of January 31st, 2021, according to the IRS Page Hiring Employees, employers “are required to get each employee’s name and Social Security number (SSN) and to enter them on Form W-2. (This requirement also applies to resident and nonresident alien employees.) You should ask your employee to show you his or her social security card. The employee may show the card if it is available. You may, but are not required to, photocopy the Social Security card if the employee provides it. Record each new employee’s name and social security number from his or her social security card.”

The page goes on to give a warning to employers, saying not to “accept an ITIN in place of an SSN for employee identification or for work. An ITIN is only available to resident and nonresident aliens who are not eligible for U.S. employment and need identification for other tax purposes. You can identify an ITIN because it is a 9-digit number, beginning with the number “9” and is formatted like an SSN (NNN-NN-NNN).”

So hopefully you learned a thing or two about the requirements and things to look out for when it comes to hiring W-2 employees. Remember, the IRS requires you to have new W-2 employees fill out Form I-9 and show you their social security number, which you need to enter on Form W-2.

Next we’ll take a look at one of the parts of payroll and employment tax that many business owners struggle with: employment tax withholdings. Check back soon!

Sources:

https://www.irs.gov/businesses/small-businesses-self-employed/hiring-employees