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From the CEO: What You Need to Know About State and Federal Taxes Before You Hire Your First Employee
Michael Ly • November 1, 2017
I remember the excitement of hiring my first employee.
Bringing on staff can feel like a big step toward that scalable business you’ve always wanted ( Take a look at Jooble , a place with thousands of current vacancies.) With more staff, you can delegate tasks and increase your output. But do you know what you need about State and Federal taxes before your make your first hire? It’s one thing to go into business for yourself. It’s something else entirely to take on the responsibility of another person’s income.
Once you’ve decided that an employee is a right next step for your business, you’ll need to be financially prepared for the financial implications.
Both you and your new employee have state and federal tax obligations. Here are the basics.
What you owe:
At the federal level, you must pay social security and medicare on behalf of your employee. You are also responsible for paying what’s called a FICA match. FICA stands for Federal Insurance Contributions Act, and you have to pay an amount equal to your employee’s social security and medicare tax.
Under federal law, you must pay for unemployment insurance for all employees. Most states also have an unemployment insurance program. This payment goes into an unemployment fund that your state maintains to provide temporary benefits to people who lose their jobs.
Some municipalities also require payroll taxes that are tied to employment, such as a commuter tax.
What your employee owes in State and Federal taxes:
Your employee is required to pay income, social security, and Medicare taxes out of their wages. But if you’ve ever been an employee, you know employees don’t make these payments on their own at tax time.
You, as their employer, serve as a withholding agent. You are required to withhold the taxes they owe the government from their paychecks and then submit those taxes on a monthly or quarterly basis to the state and/or federal government.
In addition to actually submitting the funds, you have reporting requirements. When you make submissions during the year at monthly, quarterly, or biweekly intervals, you are making estimated payments that have to be reconciled with what you actually owe at the end of the year, similar to the way an individual must file a personal income tax return.
What you must do to comply:
If all this has you feeling a little overwhelmed, you’re not alone. Many entrepreneurs and small business owners outsource their payroll processing requirements as a way to ensure compliance with State and Federal taxes.
There are three basic ways to meet your payroll tax burden:
- Do it yourself. This could mean manually filling out the paperwork or using accounting software. Either way, you’ll need to know the applicable laws and make sure you’re keeping up with submitting requirements.
- Use an outsourced payroll service. Companies like Paychex, ADP, Gusto, Paydata, and Quickbooks Online have options for managing payroll payments.
- Use a bookkeeping service to manage a payroll service. A bookkeeping service can make sure that payroll taxes are calculated and submitted appropriately and ensure that the information is accurately incorporated into your accounting records.
Growing your team provides innumerable benefits – from increased output to the intangibles of having someone else to share the ups and downs with. Bringing on one employee may seem like a relatively small addition to your administrative load, but it’s important to get proper systems in place so that you don’t make mistakes that get you in trouble with state or federal tax authorities.
However you decide to handle payroll, we’re here to help.
[And a quick word of caution if you decide all this is too troublesome and you’ll just hire an independent contractor. Many entrepreneurs start off using independent contractors before they hire their first employees. I’m all for outsourcing tasks – after all, it’s how my business thrives. But if you’re working with freelancers, check on the state and federal tax regulations to make sure you’re not avoiding the payment of necessary taxes.
Both your state tax department and the Federal Government have rules defining who is an employee and who is an independent contractor. Making the correct determination matters. If the IRS considers your independent contractor an employee, you can be on the hook for substantial penalties and back taxes.]
The post From the CEO: What You Need to Know About State and Federal Taxes Before You Hire Your First Employee appeared first on Reconciled.
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New York, NY (August 15, 2023) - Inc. announced today that Reconciled, a leading provider of cloud-based bookkeeping and accounting services headquartered in Burlington, Vermont, ranks #1983 on the 2023 Inc. 5000, its annual list of the fastest-growing private companies in the United States. Reconciled also ranks #124 in the Financial Services category, solidifying its status as a trailblazer in the industry. “Running a business has only gotten harder since the end of the pandemic,” says Inc. editor-in-chief Scott Omelianuk. “To make the Inc. 5000—with the fast growth that requires—is truly an accomplishment. Inc. is thrilled to honor the companies that are building our future.” The Inc. 5000 class of 2023 represents companies that have driven rapid revenue growth while navigating inflationary pressure, the rising costs of capital, and seemingly intractable hiring challenges. Among this year’s top 500 companies, the average median three-year revenue growth rate ticked up to an astonishing 2,238 percent. In all, this year’s Inc. 5000 companies have added 1,187,266 jobs to the economy over the past three years. "It is a tremendous honor for Reconciled to be recognized on the INC 5000 list and to hold such a high rank in our category," said Michael Ly, CEO and Founder of Reconciled. "This achievement is a testament to the dedication and hard work of our team, the trust of our valued clients, and our unwavering commitment to delivering top-notch financial services. We are incredibly proud of this recognition and look forward to continuing our journey of growth and innovation." With a focus on leveraging cutting-edge technology, personalized support, and a team of highly skilled professionals, Reconciled has emerged as a leader in the virtual bookkeeping and accounting industry. Their leading-edge approach has enabled businesses to streamline financial processes, gain valuable insights, and make informed strategic decisions to drive growth. Reconciled's rank on the Inc. 5000 list signifies its impressive growth trajectory over the past year, with 282% 3-year growth. The company acquired three firms in the past three years: HR Business Solutions in Chattanooga, TN, Accounting Services Group in Tempe, AZ, and Bean Team in Tallahassee, FL. Reconciled also expanded its services with the launch of a new tax and advisory department. Reconciled’s dedication to driving efficiency and financial clarity for businesses has earned them the trust and loyalty of an expanding national client base of small and large companies, with client partners in manufacturing, e-commerce, non-profit, professional services, and food and beverage and several other industries. More about Inc. and the Inc. 5000 Methodology Companies on the 2023 Inc. 5000 are ranked according to percentage revenue growth from 2019 to 2022. To qualify, companies must have been founded and generating revenue by March 31, 2019. They must be U.S.-based, privately held, for-profit, and independent—not subsidiaries or divisions of other companies—as of December 31, 2022. (Since then, some on the list may have gone public or been acquired.) The minimum revenue required for 2019 is $100,000; the minimum for 2022 is $2 million. As always, Inc. reserves the right to decline applicants for subjective reasons. Growth rates used to determine company rankings were calculated to four decimal places. About Inc. Inc. Business Media is the leading multimedia brand for entrepreneurs. Through its journalism, Inc. aims to inform, educate, and elevate the profile of our community: the risk-takers, the innovators, and the ultra-driven go-getters who are creating our future. Inc.’s award-winning work reaches more than 50 million people across a variety of channels, including events, print, digital, video, podcasts, newsletters, and social media. Its proprietary Inc. 5000 list, produced every year since 1982, analyzes company data to rank the fastest-growing privately held businesses in the United States. The recognition that comes with inclusion on this and other prestigious Inc. lists, such as Female Founders and Power Partners, gives the founders of top businesses the opportunity to engage with an exclusive community of their peers, and credibility that helps them drive sales and recruit talent. For more information and to see the full list of winners, visit www.inc.com .
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