Check each state’s unique payroll laws and tax rates.
Payroll laws by state
Important tax information when hiring your first employee
When you hire your first employee, you’ll need to pay employment taxes. Every time you pay an employee, you’ll need to pay taxes on a regular schedule.
Withholding taxes are funds withheld from your employee’s pay and submitted to Federal and State governments. Paying withholding tax is required by law. There are three types of withholding tax: Federal, State, and Local.
Things to know about withholding tax
You must register your business with Federal, State, and/or Local agencies in order to obtain your agency ID number. You’ll also establish deposit frequency. This is a critical step when hiring your first employee. If you fail to obtain your Agency ID number, tax payments will not be reported or paid correctly, and the Federal or State agency will charge you penalty and interest fees. They may even place a lien on your property or bank account.
- Deposit frequency is how often you need to make your payments.
- Payment refers to withheld funds paid to the Federal or State government.
- Filing or reporting is submitted to the state or federal government to balance the payments.
When you make your payments, be sure you pay them by the due date on the coupon from the agency, or by the due date issued by the IRS.
Your employee must fill out their W-4 form. This helps you know how much to withhold from their paycheck.
Unemployment insurance tax
Unemployment tax is paid by you, the employer. Each State agency will provide you with an overall annual tax rate. You are responsible for paying quarterly taxes throughout the year to the applicable State agency.
Things to know about unemployment insurance tax
- You must register your business with the State agency in order to obtain your agency ID number and your tax rate. This is a critical step when you hire your first employee.
- Payment is made to the Federal or State government.
- Filing or reporting is submitted to the state with the payment.
New hire reporting
You are required to report each employee you hire to the State within 20 days of their first day of work.
Things to know about new hire reporting
- Hiring an independent contractor Independent contractors are paid a sum for work completed, and they are responsible for paying their own taxes. As an employer, you don’t withhold taxes or pay unemployment taxes for them. If you convert a contractor into an employee, you’ll need to start collecting and paying withholding tax and unemployment tax to the respective agency.
- You can learn more about the differences between contractors and employees here.
- If you hire an employee that lives in a state other than where your business is, you may have to pay taxes in both states—the state where your business is located, and the state where your employee lives. You will need to contact both State agencies to find out what taxes you need to pay.