When a business hires a new employee, it is legally obligated to make sure that certain information about these new hires is provided to relevant government agencies. This information, which is provided by employees who fill out specific forms on their first day of employment, is used for tax purposes and to ensure that they are legally eligible to work in the United States.
The primary documents that are necessary for employee registration with the government are the Federal Tax Withholding Form (W-4), state and/or local tax withholding forms; and the Employment Eligibility Verification Form (I-9). Individual companies may also have specific forms for emergency notification and other critical information. The content of each form, as well as its purpose, should be fully explained to each employee.
TAX WITHHOLDING FORMS "As an employer you have a tremendous fiduciary responsibility to collect and withhold taxes from employees on virtually every paycheck you issue," wrote Bob Adams in his Adams Streetwise Small Business Start-Up. "Throughout the United States, you must withhold an appropriate amount for federal income and other earnings-related taxes. Many states and some municipalities also require the payment of an income or other tax on earnings."
A cornerstone of the federal tax-gathering system is the federal W-4 form. This form, also known as the Employee's Withholding Allowance Certificate, provides the Internal Revenue Service with the filing status and withholding allowances of each employee. Once a new hire has determined his or her filing status and number of withholding allowances, the employer uses IRS tables to determine how much federal income tax should be withheld from the employee's wages (employers should understand that under this arrangement, they are essentially acting as agents for the taxing authority; the money that is withheld belongs to the taxing authority, even if possession has not been formally transferred).
Where applicable, employers also have to withhold state and local income taxes from worker paychecks. States and municipalities have dramatically different arrangements in this regard; some states, for instance, have no state income tax, while others have fairly sizable ones. Employers who wish to keep up to speed on their requirements, if any, in this area should contact their local and state tax agencies for information on specific employee registration procedures, etc.
EMPLOYEE ELIGIBILITY The other major employee registration procedure that small business owners need to pay attention to is the completion of the federal Form I-9. This document assures the U.S. Immigration and Naturalization Service (INS) that the employee is legally eligible to work in America. The Form I-9 is filled out by both the employee and the employer. For further information, consult the INS web site at www.ins.usdoj.gov.
Adams, Bob. Adams Streetwise Small Business Start-Up: Your Comprehensive Guide to Starting and Managing a Business. Adams Media, 1996.
"Employer's Supplemental Tax Guide." Internal Revenue Service, 2000.
Josefowicz, Barbara. "Worker Classification and Employment Taxes." Tax Advisor. February 2001.
Weiss, Donald. Fair, Square & Legal: Safe Hiring, Managing & Firing Practices . AMACOM, 1993.