Before Payroll Part 3: Payroll Account Applications

Last week I talked about considering the cost of an employee before you begin payroll. If you didn’t quite catch everything in that post, don’t worry because the first time you file a quarterly payroll tax return you will understand. This week I am getting beyond trying to work without employees and am assuming from here forward that you are going to or have begun paying employees. Today I will discuss the payroll account applications that you need to set up with the IRS and State agencies so that you can register and pay the appropriate taxes to the right people.

Unfortunately, this is all part of the cost of having employees, but hopefully this post will save you some time, energy, and money. I will give you a basic review of what you need to get started. Keep in mind that different states have different requirements and that this isn’t meant to be all-inclusive. If you want more details on exactly what is required for your state, feel free to leave your question in the comments section or connect with me in some way and I will help you out with your specific state and situation.

First off, you will need to have registered your business with your Secretary of State and formalized your business entity. I will go into this in the coming weeks on another post, but the reasoning is that you will also need to register for an Employee Identification Number (EIN) with the IRS and will need to file articles of incorporation with your State. For Colorado, the link is here under “Form a new…” If you have done this, you can go to the IRS website here to apply online for an EIN. Be sure to read the directions and information provided on the website as I cannot go into all of the details here to make sure that you are filing correctly for this application. I will touch on this in a future post.

The next step after you have received your EIN is to sign up for the Electronic Federal Tax Payment System (EFTPS). This account will allow you to pay your business’ Federal payroll tax payments electronically. This is required if your liabilities exceed $2,500 in a given quarter.

Moving onto the State, there are typically two accounts that you will be required to apply for: the Department of Revenue and State Unemployment. I will provide the links for Colorado, but you will need to apply for the appropriate accounts in whatever state your employees reside. You can apply online or through a mail-in application for Colorado here.

State Unemployment is not a tax, but a mandated insurance that runs on average between 2-5% of the  first $10,000 in wages per employee per year. However, for many (not all) States, you do not need to apply for this account until you pay gross wages of $1,500 or more in a given quarter. This is helpful to know if you are planning on hiring just one part-time employee for your business and if the wages are going to be less than $1,500. The unemployment account application is typically an involved and complicated application, so take care you understand and take some time for this application in particular.

Beyond this, you may want to apply for your state’s online account to make payments and review your liability balance and prior returns. Many states will also include an option to apply for the sales tax license with the withholding account.

So that is how you apply for the accounts you will need to process payroll for your employees. Next week I will explain how to set up the corresponding payroll tax liability accounts and rates in QuickBooks to ensure you are tracking your liabilities correctly. I hope this was helpful to you, and if you have any questions or need any help please leave a comment or get in touch with me.

Keep Reaching!



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