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Payroll 101: What identification numbers are required before you can pay employees?

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Welcome to National Payroll Week! We have a handful of topics to cover. Let's kick it off with some payroll basics. When you receive your paycheck, it's easy to overlook the calculations that ensure you and the company you work for stay compliant with Federal, State, and Local regulations.

 

To help explain payroll a little more I put together several blogs and videos to go over:

  1. What you need to pay employees
  2. Who gets a paycheck
  3. How much an employee paycheck really costs
  4. When payroll forms are due
  5. When payroll taxes need to be paid

 

Today’s topic: What identification numbers are required before you can pay employees. 


Let’s start at the very beginning… before you can hire and pay your employees, what employer identification numbers do you need?

In order to pay employees you must have: 

  • A Federal Employer Identification Number (FEIN aka EIN)
    An EIN is kind of like a Social Security Number (SSN) for your business and is used by the IRS to identify a business entity. Don’t have an EIN?  Get one by applying for one here on the IRS site.
  • State and local business ID numbers
    Similar to the IRS, state and local tax agencies (most times) also require businesses to register

 

Why are these needed? To get the taxes right!
Payroll taxes are federal, state, and local taxes withheld from an employee’s paycheck by the employer. The employer pays these to the IRS and state and local tax agencies. Paying and filing taxes is impossible without the necessary federal, state, and local ID numbers.

Every payroll follows the steps of:

  1. Calculate the payroll taxes
  2. Withhold the payroll taxes
  3. Pay the payroll taxes
  4. Report the taxes (payroll forms)

We’ll go into more about those taxes and payroll forms in a later session, but let’s first make sure we understand who actually gets a paycheck in the first place.

 

Please give us feedback about the payroll compliance content we’re providing you!

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