Ready to run payroll? 10 steps to prepare your business to manage payroll taxes

Ro Williams
By Ro Williams

Many business owners worry that their business isn’t properly set up for payroll taxes. Payroll taxes are an obligation that many businesses owe to the government, and not remaining compliant could mean penalties for your business. To help you set your business up for success, here’s a checklist of steps that you should take when setting up your business for payroll. 

#1 - Make sure your business structure is set up for payroll success

All business entities are not able to claim payroll for owners for tax purposes. If you are considering payroll, then be sure that your business entity is qualified to run payroll. Read more about how your business entity structure can affect your payroll.

#2 - Make sure you have an EIN

An EIN is a federal identification number. Your EIN is like a Social Security number for your business.  This nine-digit number is how the IRS will track a company for tax purposes.

#3 - Set up an EFTPS Account

The Electronic Federal Tax Payment System is a service where business owners can pay their tax obligations.

#4 -Register with your state

Most states require business owners to register with either the Revenue Department or the Treasury Department. States typically provide portals for business owners to set up accounts to remit payroll reports and withholding deposits.

#5 - Choose a payroll provider

Because payroll is such a beast, there are tons of services available for business owners to contract someone else to do the heavy lifting of payroll. For restaurants and retailers, TOAST or 7Shifts is pretty handy and also Gusto or Quickbooks. Gusto and Quickbooks provide more of a full-service environment for payroll — they assist you in paying employees, reporting withholdings to federal and state, and also completing deposits for federal and state obligations. 

#6 - Know the basics of an I-9 form and a W-4 form

  • I-9: Is used to verify the identity and employment authorization of individuals hired for employment in the United States.
  • W-4: Used to determine federal withholding from income. 

#7 - Become familiar with FICA, FUTA, and SUTA.

FICA: A US Payroll Tax that consists of medicare and social security. 

FUTA: A US Payroll Tax for Federal Unemployment Insurance. Only employers pay this tax to the government. This tax applies only to the first $7,000 of each employee’s wages. ​​

SUTA: A State payroll tax for State Unemployment Insurance: Only employers pay this tax to the state government. Each state has control over how the tax is applied to each business industry. 

#8 - If your state has no income tax, make sure you are withholding other payroll requirements. 

Even if your state does not have an income tax, you may still owe state payroll taxes such as SUTA. 

#9 - Learn about Work Opportunity Tax Credits

A work opportunity tax credit is a Federal tax credit given to employers who hire individuals from certain demographics described as targeted groups. 

#10 - Become familiar with important state and federal payroll due dates

When it comes to payroll taxes, heavy fines are attached to late filing or missing payments. Learn about deadlines that your business may need to meet now that payroll is a part of your business function. Lastly, don’t forget to learn about the labor laws your business may now have to abide by. The way you handle employees and payroll is regulated within every state is specific to that state. Each state has specific laws on how your employees should be paid and the compliance responsibility around making sure your employees are paid. Make sure you read and keep up to date on how these laws can affect your business. 

The final step is to be ready for the next step

Even after you’ve set your business up for payroll, you’ll want to keep up-to-date with any changes to regulations or deadlines. You’ll also want to regularly check your business’s status and qualifications for certain programs, such as your eligibility for tax credits or deferments. To help you keep track of annual applications, licenses, and tax deadlines, ComplYant’s got you covered. Try us for free.  

Ro Williams
By Ro Williams
Ro Williams is a part of the tax research team at ComplYant. Ro is an experienced professional in the accounting & tax industry and has previously held positions at an International Law firm and Public Accounting firms focusing on complex tax related issues. Ro spent her undergrad at Purdue University and is a devoted Boilermaker fan.

Related posts

Tax Form 1040 sits on a table with a calculator and a green highlighter
How To's

Need to correct a tax return? Here's how to change it

Mistakes were made. There was a glitch in the system, or maybe someone didn’t carry a one in some calculation. Whatever happened, there’s an error. You need to amend your tax return. Fortunately, the IRS has provisions in place to allow for this, and the steps are fairly simple.
An African-American woman certified public accountant sits at a desk with her client
How To's

Choosing the right CPA for your business

The right CPA will save you headaches, money, and time, so it pays to find the right one for your business.
Young businessman excitedly reads his business's financial reports
How To's

How to keep your small business cash flow positive

Profit is good in a small business. But don’t overlook cash flow as a key indicator of the health of your business.