When it comes to running payroll, you can either do it yourself or hire one of the many payroll services to do it for you. The difference between those two options is a matter of determining whether you have the spare time and patience to navigate convoluted tax laws all while running a company. But if you consider yourself to be especially tax-savvy, maybe hiring a payroll service isn't necessary. With the knowledge in our back pocket that payroll services exist and are a reliable backup plan, let's explore the other path, the one less taken: DIY payroll.
The first step to running your payroll is having your employees fill out a W-4 form. This form is used to track personal allowance and document each employees' filing status. On the W-4, there is a line that asks for an Employer Identification Number, or "EIN," a number that's unique to your company like your SSN is unique to you. Filing for an EIN is the second step before you can begin running payroll, and you can do so on the IRS site. Keep in mind; states often require you to file for a state EIN that is different than your FEIN.
Once you have your employees' W-4s and your company's EIN, it's time to set up your payroll schedule. Since labor laws have hefty fines for failing to comply with their strict deadlines, it's best practice to set a payroll schedule that includes dates for paying your employees, as well as filing and paying the associated taxes on time.
After you set up your payroll schedule, move on to the fourth step: calculating and withholding income taxes. To complete this step, utilize the IRS withholding calculator so that you keep an accurate record of withholding taxes on the employee and employer sides. Once you know how much to withhold, it's time to submit your federal, state, and local tax deposits. Depending on your business's structure and its monthly sales volume, you may submit these deposits on an annual, quarterly, or monthly basis. Finally, prepare and submit your annual filings and W-2s at the end of your tax year.
Although this article is by no means a comprehensive list of your payroll duties and should not be treated as professional consultation, remember that payroll services are always available for that very reason.
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