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Payroll Paperwork & Filing

Alex Dees
Growth Lead @ Zeal

How to onboard workers

Employers are required to comply with a federal new hire reporting requirement. For each newly hired or rehired employee, the employer must provide the following information to the state new hire directory:

  • The employee’s name, address, and social security number
  • The employer’s name, address, and Federal Employer Identification Number (FEIN)
  • The date the employee first performed services for pay

States may request additional information:

  • A rehired employee must be reported when the individual has been separated from employment with the organization for at least 60 consecutive days.
  • Employers with employees in only one state must report newly hired employees to that state, either on paper, magnetically or electronically. Employers with employees in two or more states that report new hires magnetically or electronically may designate one state where they have employees as the state to which they will report all their new hires. Multistate employers that wish to file all their new hire reports with one state must designate that state to the Secretary of Health and Human Services (HHS).

Federal government employers must report new hires to the National Directory of New Hires. Employers must report newly hired employees within 20 calendar days of the date of hire. If an employer reports new hires magnetically or electronically, it must send two transmissions for each calendar month which are 12–16 days apart.

Form W-4

Every employer must deduct and withhold federal income, social security, and Medicare taxes from wages paid to employees using a W-4 Form. Employers must use one of the withholding methods prescribed by the IRS to calculate the exact amount of withholding. All newly-hired employees should complete and submit a signed Form W-4 to their employer on or before the first day of work.

If allowances increase, current employees can file an amended Form W-4 any time their number of allowances increases, for example, at the birth or adoption of a child.

If allowances decrease, (thus increasing the amount withheld each pay period), employees must file an amended Form W-4 within 10 days. This could happen when:

  • An employee is divorced or legally separated.
  • Someone else takes over the support of a dependent.
  • Someone else takes over the support of a dependent.

The IRS does not require employees to complete a new Form W-4 each year. Employees may be required to complete a Form W‑4 when their circumstances change.

  1. Initial solicitation. An employer must be able to show that it made an initial solicitation for the employee’s SSN at the time the employee began work. The initial solicitation can be made by requesting that new employees complete Form W-4. No additional solicitation is required until the IRS notifies the employer that the employee’s SSN is incorrect.
  2. Additional solicitations. Following receipt of an IRS penalty notice, the employer is required to make up to two annual solicitations for the correct name/SSN combination. The first annual solicitation for the name/SSN must be made by December 31 of the year in which the penalty notice was received, and may be made by mail, telephone, electronically, or in person. (Note: The solicitation is not required if the employee will not receive a W-2 form for that year.) A second annual solicitation is required if the employer receives an additional IRS notice of incorrect name/SSN for the employee in any subsequent year.
  3. The end of the inquiry. An employer may rely on the SSN that an employee provides in response to a solicitation, and the employer may use that SSN in filing a Form W-2 for that employee. Note that if the employer receives an IRS notice of an incorrect TIN (taxpayer identification number)—an employee’s SSN—after having made two annual solicitations and reporting the SSN provided by the employee, the employer is not required to make further solicitations. The employer’s initial and two annual solicitations will demonstrate that it has acted in a responsible manner before and after the failure to obtain a correct SSN and will establish reasonable cause for abating the penalty
  4. The best method for an employee to determine the marital status and withholding allowances on Form W-4 is by using the IRS' withholding calculator found at IRS.gov/w4app.

Employers are not required to monitor employees for changes that decrease allowances.

  • The death of a spouse does not require the surviving spouse to file a new Form W-4 until January 1 of the year after the spouse’s death.
  • The death of a dependent child does not require a new Form W-4 be filed until January 1 of the year after the dependent child’s death.
  • The employer is encouraged to notify employees by December 1 that they need to file an amended Form W-4 if their filing status or number of allowances has changed.
  • Employees cannot submit a revised Form W-4 in anticipation of a change. For example, if they expect to be married, they cannot change their marital status or number of allowances until after the wedding.
  • After a current employee files an amended Form W-4, the change must be reflected in withholding no later than the first payroll period ending on or after the 30th day after receiving the amended Form W-4.

Form W-4 consists of three pages which contain three worksheets:

  1. Personal Allowance Worksheet
  2. Deductions, Adjustments, and Additional Income Worksheet
  3. Two-Earners/Multiple Jobs Worksheet

The following is a list of the personal allowances to which an employee is entitled:

  • One for the employee
  • One if the employee will file as married filing jointly
  • One if the employee will file as head of household
  • One if the employee is single, or married filing separately, and has only one job; or the employee is married filing jointly, has only one job, and the employee's spouse doesn’t work; or wages from a second job or spouse’s wages (or total of both) are $1,500 or less
  • Child tax credit. See Pub. 972, Child Tax Credit, for more information.
  • Credit for other dependents.

Exemption From Withholding & W-4

If an employee claims he or she is exempt from withholding on a Form W-4, employers do not withhold federal income tax. In order to be exempt, the employee must certify on the W-4 form that they:

  • Had a right to a refund of all federal income tax withheld in the prior year because the employee had no tax liability;
  • Expects to have no tax liability in the current year;
  • Cannot be claimed as a dependent on someone else’s income tax return if the employee will receive more than $1,100 in income, including more than $350 in unearned income, in the current year;
  • When an employee provides their employer with a Form W-4 claiming exemption from withholding, the form is valid for the remainder of that year and until February 15th of the next year. If the employee does not provide a new Form W-4 before it expires on February 15, the employer will use the marital status and allowances found on the most recent valid W-4 form received before the form claiming exemption. If the first W-4 form provided by the employee claims exemption from withholding and expires without a new form being submitted, the employer will treat the employee as if no Form W-4 had been submitted—single and no allowances;
  • Those who earn less than the standard deduction can ordinarily claim to be exempt from withholding. However, earning less than these amounts does not guarantee that an employee qualifies for exemption;
  • Dependents. Being a full-time student and a dependent does not automatically exempt your part-time employees from withholding requirements. When total income (both earned and unearned) exceeds $1,100 per year and includes more than $350 of unearned income, an employee who can be claimed as a dependent by their parents (or someone else) is not exempt from withholding. Unearned income includes interest earned on a savings account, dividends, capital gains, or other investment income. This provision was inserted into the tax code to prevent high-income parents from shifting assets to their children to avoid taxes;

Employees who want to continue their exempt status must file a new Form W-4 with their employer by February 15 of each year. Remind employees that if no valid Form W-4 is filed by the deadline, you must withhold based on a valid W-4 on file for the employee. If there is no valid W-4, then withhold as if they were single with no allowances.

Form W-9

Form W-9 is used to confirm a person’s name, address, and Taxpayer Identification Number (TIN) for employment or income-generating activities. The W-9 is commonly referred to as the Request for Taxpayer Identification Number and Confirmation form. The form can be used for both U.S. citizens and resident aliens. Some income-generating activities that are applicable are:

  • Income paid to you.
  • Real estate transactions.
  • Mortgage interest you paid.
  • Acquisition or abandonment of secured property.
  • Cancellation of debt.
  • Contributions you made to an IRA.

The form is solely used for the purpose of confirming a person's Taxpayer Identification Number. It differs from a W-4 Form in that it does not set up a withholding schedule. It is most commonly used to request the information required for the 1099 form, which is distributed to independent contractors once a year for filing purposes.

Form W-2

Form W-2, also known as the Wage and Tax Statement form, is required to be completed and distributed at end of year by employers to employees. It’s purpose is to provide the information required by an employee to complete their state and federal tax returns. The W-2 reports wage and withholding information to the employee. Specifically its used to withhold FICA withholding tax information. W-2 forms are only required for W-4 employees. The IRS uses W-2s to track an individual's tax obligations.

Every employer engaged in a trade or business who pays remuneration, including noncash payments of $600 or more for the year (all amounts if any income, social security, or Medicare tax was withheld) for services performed by an employee must file a Form W-2 for each employee (even if the employee is related to the employer) from whom:

  • Income, Social Security, or Medicare tax was withheld.
  • Income tax would have been withheld if the employee had claimed no more than one withholding allowance or had not claimed exemption from withholding on Form W-4, Employee's Withholding Allowance Certificate.

Form 1099-NEC

Form 1099-NEC is used to report nonemployee compensation. Businesses should complete the form for any independent contractors (nonemployees) who were paid $600 or more over the calendar year.

Form 1099-NEC is one of many 1099 tax forms. The others include 1099-MISC for miscellaneous income, 1099-INT for interest income, and 1099-DIV for dividend and distribution income. Form 1099-NEC is applicable for three types of payments:

  • Payments made to contractors for services completed (most common)
  • Purchase of fish from an individual in the fishing industry
  • Fees paid to an attorney

Form 1099-NEC should be distributed by Jan 31st of the following year.

List of Federal Payroll Forms