Once the decision has been made to hire employees, there are a number of steps that must be followed to become established as an employer with various government agencies. And, after the set-up, there are a number of reporting requirements that must be followed.
The first step in the process of becoming an employer is to register with the IRS (Internal Revenue Service). You need to complete and file Form SS4. This can be completed, phoned into the IRS to obtain a tentative EIN (Employer Identification Number), and then mailed. Or, you can mail the form to the IRS and wait for receipt of your EIN. As a result of this application, you will receive Circular E with instructions and tables on Federal income tax and FICA tax withholdings. In addition, you will receive a couple of Federal Tax Deposit Coupon books. Finally, you will be placed on the IRS mailing list for 941 Quarterly Tax Reports and 940 Annual Unemployment Reports.
Once you have your EIN from the IRS, you will need to file applications with three (3) Ohio agencies:
If your business is located in a city with an income tax, then you will need to call your local tax department and have them send you an application. This will establish you as a city withholding agent. You will receive income tax withholding information and be placed on their mailing list to receive quarterly and annual report forms. Note: A business located outside of a city with no income tax but having employees living in cities with an income tax is not required to collect city taxes. However, if the employer does not collect the taxes, the employee will have to pay the taxes and file a tax return that otherwise is often not required.
For most employers who are just starting, the payment requirements are simple. The employer withholds Federal and FICA taxes from each paycheck during the month. On or before the 15th day of the following month, these withholdings plus a payment equal to the FICA withholdings are paid to the IRS. The payment is made by check to your local bank, along with a coupon from your Federal Tax Deposit Coupon Book. On the coupon you write in the amount of the payment, the type of deposit (941), and the quarter (1st, 2nd, 3rd, or 4th). The quarter is determined by the month you are paying for. For example, the March withholdings are paid by April 15th, but they are for the 1st quarter.
Note: Initially, employers' state and city withholding payments are made with their quarterly reports. Since the requirement to file monthly is based on total tax withholdings, the employer will be notified by the state and/or city if there is a change to monthly payments.
Each quarter, the various government agencies will send you forms to complete and file along with your payments. An exception is the IRS. They do not send you a form for reporting your federal unemployment until the end of the year. So each quarter, you need to determine your wages subject to unemployment (you pay on the first $7,000 of wages paid to each employee). Multiply this amount by 0.008 to determine your quarterly liability. The payment is made in a check to your local bank, along with a coupon from your Federal Tax Deposit Coupon book. On the coupon you write in the amount of the payment, the type of deposit (940), and the quarter (1st, 2nd, 3rd, or 4th). For example, the April payment is for the 1st quarter.
Form 941 Employer's Quarterly Federal Tax Return requires you to figure the total wages, tips and other compensation and Federal withholdings, as well as Social Security and Medicare wages and taxes. Also, you must report your monthly summary of Federal tax liability. These totals are compared. If everything has been properly prepared, the difference in the liability and payments will be a few cents which will result from rounding. No additional tax should be owed, (all deposits should have been made to the bank) and you should simply sign and send the form to the IRS office in Cincinnati. If all payments were not made, then the return and payment needs to be sent to the IRS office in Chicago.
This legal size form is actually two forms in one. The top portion of the form is the Employer's Report of Wages. On it you must type (not print) the Social Security numbers of all the employees who work in the quarter, as well as their name, the gross wages earned for the quarter, and the number of weeks they worked. The bottom portion of the form is the Employer's Contribution Report. On it you write-in the number of employees who work for you on the 12th of each month of the quarter. In addition, you record the total gross wages paid, then the taxable wages (those wages that have not exceeded the OBES maximum which is $9,000 in 1995), and then multiple this wage total by the unemployment rate to determine the amount due. This must be paid with the forms. Note: both forms must be signed.
This is a coupon taken from the booklet the State of Ohio Department of Taxation mails to you at the beginning of each year. It is a simple form. Write-in the amount of state taxes withheld from all employees for the quarter and send it along with the coupon.
This is a rather simple form too. Write in the name of the school district(s), it's number, and the amount of school district income withheld for the quarter. Send the form and the payment.
Each city has its own form. Most are simple and require that you record earnings, multiply by the city tax rate, and determine the amount due. The form and payment are then mailed.
Unlike the Federal, and other state and city agencies; the OBWC report is filed semi-annually, rather than quarterly. It is filed in July and January. The number of employees for the six month period must be totaled. The gross wages for the six month period must be totaled by manual numbers which appear on the form. If the company is a corporation, then there are limits on the amount of wages to be reported for the first half of the year. Likewise, there are rules about the wages to report for the second half of the year. If the business is a sole-proprietorship and the owner has elected coverage, the payment is based on the earnings of the business with minimums and maximums. Gross wages for each manual number are multiplied by the rate on the form. These premium totals are added to obtain a Total Premium. A wage total must also be obtained. An administrative cost is then calculated based on the current rate on the form. A Disabled Workers Relief Fund must also be calculated based on the current rate on the form. These three figures are then added together to obtain the amount owed to OBWC. The form and payment are sent to OBWC. If the payment is not received within 30 days of the filing deadline, coverage is discontinued until payment is received.
Note: For quarterly reports, there is a penalty for failure to file on time and a separate penalty for failure to pay on time. So, if one cannot pay on time, it is still important to file on time.
Each year the IRS sends this form to report on gross wages paid for the year. You have to adjust for the amount paid to employees over $7,000 or those exempt from the FUTA tax. The difference in these two figures is the FUTA taxable wages. You multiply these wages by the current rate to determine the FUTA tax liability. You then record the total payments made for the year. Subtracting these two figures will determine if you owe additional money or if you are entitled to a refund. You must also report the quarterly tax liability (if the accumulated tax liability is over $100).
This form requires that you also report the amount of contributions paid to OBES along with your OBES reporting number. Later, the IRS and OBES compare wage reports and contributions. If OBES is not paid the amount due, the IRS will collect the funds. If there is an error in the OBES records or if payments were made late, the employer must obtain a recertification statement from OBES to file with the IRS to correct their records.
This form identifies the quarterly liability, payment date, and payment amount. The quarterly amounts need to match the totals for the year.
Each city has their own form to identify the quarterly withholdings and totals. In some cases this same form is used to compare these totals with the city withholdings on the W-2s. It often serves as the cover sheet for the W-2s.
This form simply requires you to total the amount of school district taxes withheld for all districts and match it with the total amount of payments for all school districts.
A series of W-2 forms must be completed for each employee. The employee needs a copy for Federal, State, possibly school district and one or more Cities, plus a copy for him/herself. In addition, the employer must send a set of W-2's to the Social Security Administration. These are attached to a W-3 which provides a total of wages, Social Security wages, Medicare Wages; as well as Federal income tax, Social security, and Medicare taxes withheld. It also identifies the number of W-2's attached, plus employers Federal and State identification numbers.
IT-3 is the cover page for the W-2's submitted by the employer to the State of Ohio Department of Taxation. On it you report the number of W-2's attached and the total Ohio income tax withheld, as well as the total school district liability.
Note: Since the quarterly report totals (wages, as well as Social Security, federal, state, city and school district taxes) must match with W-2 totals, it is best to be sure they do before completing the W-2's and fourth quarter reports. The IRS (usually one or two years after filing) will check these figures. If they do not match, the IRS will send a notice which asks for an explanation of the difference and bills you for the additional taxes (plus interest and penalties) or requires you to file amended W-2s and/or 941 Quarterly reports.
For more information, refer to IRS publication Circular E.
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