Hiring John Doe

[Evan]

Not literally, but I'm trying to figure out the entire process of hiring an employee and what needs to be filed with who. I was looking to hire a part-time assistant who will get one lump payment, and I'm sure that taxes will have to be withheld, but is it going to look suspicious when you're paying the government $2.00 for an employee you have?

I've heard W-4 is required (no problem there), then at the end of each pay period I need to deduct certain things. Do I need to pay the government this amount quarterly, and what if it will only be one quarter that this is to be paid (because the other three quarters I'm just self-employed). What other forms need to be dealt with? (I'm sure there are state specific things, but I don't know to what extent you'll be able to help with that...)

[Evan]

Hmm, I think I figured out some information by reading some IRS publications. So I'd just have to print out a 941 and start paying those quarterly? Now, instead of sending a check to the IRS, I can also pay using an approved financial instituion, and for that I'd need to fill out 8109?

From my employees income, I deduct 6.2% (social security) and 1.45% (medicare), and I also match that (6.2% + 1.45%) out of company funds.

While reading one of the publications, I found out about W-3's. When do I use those?

Also, what happens if I hire an employee out of state, do I still deduct RI (my state) taxes from him, and he has to deal with claiming that later on?

[OldJack]

The best policy, if you have many employees, is to pay the IRS (US Treasury) on the next day that you have the payroll. Payroll taxes must be timely paid or you get stiff penalties.

When the payroll tax $$ are due depends upon how much $$ and how often you have payroll. For large withholdings the tax has to be paid withing 3 banking days. For many small business it is the 15th of the month following the paycheck. For some with small amounts it is paid with the form 941 quarterly. Read pub 15 and the instructions for form 941. Form 941 is required quarterly. Form 940 annually. Form 8109 is a coupon (booklet) to use to pay the IRS (any business federal tax) by way of giving the coupon and a check to the bank that then sends it to the IRS. Large tax depositors may not use the coupon and the IRS debits their bank account.

W3 is a required transmittal form that is used to summarize the info on W2's that you are sending annually to the social security admn.

If an employee resides in another state but works in your state (RI) you withhold your states income tax (RI) and the employee must file your state income tax return to get any refund. If the employee resides in another state and does not work for you in your state you do not withhold your state (RI) income tax, but you may have to withhold tax for the employees state.

my 2¢±¼

[Evan]

The "payroll" checks I issue are small, he just assists me from time to time, I'd barely consider him an employee but I don't want the IRS knocking on my door. So pretty much, I can "hire" him, and when I issue a check, deduct Medicare and FICA (possibly FUTA, but I asked that in another topic). So when it comes to the end of a quarter, I'll file 941 and pay whatever taxes I have collected (plus what I contribute), and send the IRS a nice little check. Come the end of the year (tax season), I get to file the 940 which I'm assuming is an annual statement which just shows how much I paid in all the quarters?

I don't think I'll have to worry about Form 8109, I think I'd rather pay by check than go to a financial institution that accepts the form.

So now when I start my next year, I'll prepare a W-2 for my employee, including all the stuff that I deducted and what he was paid, and then I'll send him one copy, keep a copy for myself, and then send one to the IRS using form W-3?

Ever since he isn't a resident, nor does he work for me in RI, I don't have to hold state tax? I think that may be something I'd have to ask a Rhode Island accountant just to double check, but I do trust your word on that.

[OldJack]

FUTA tax and State unemployment taxes are not withheld from the employee, rather they are just an expense of the employer.

Form 941 is for payroll tax reporting gross wages and federal withholdings on a quarterly basis. Annual reporting on the same is the W2 and W3.

Form 940 is once a year reporting for only the annual gross pay and Federal Unemployment tax due and paid-in or balance due. No withholding.

[Evan]

You'd think both the state and federal government would make it easy to hire an employee instead of twisting an arm and a leg. I guess the real credit though must be given the people who designed the tax forms.

[Evan]

Ok, so every month I must pay the IRS these taxes -- I misunderstood the IRS publication. Then every quarter, I plug in the #'s (how much I paid the IRS, versus what I should have paid) and get it to equal... Then at the end of the year, I take the total amount of wages and pay unemployment on that... Right?

[OldJack]

Originally Posted by Evan

Ok, so every month I must pay the IRS these taxes -- I misunderstood the IRS publication. Then every quarter, I plug in the #'s (how much I paid the IRS, versus what I should have paid) and get it to equal... Then at the end of the year, I take the total amount of wages and pay unemployment on that... Right?

Federal Unemployment is due at any time you owe more than $100 but the end of the year is the form 940 showing wages and what was paid and still due.

State Unemployment varies by state but usually reported and paid quarterly.

[Evan]

Im trying to figure out my state taxes still, nothing resourceful is posted on our state website, and then there are a bunch of other taxes which I can make no sense over. I sent an email to somebody from that department, hopefully she can make some sense of what must be paid and what these other "taxes" are for.