To apply for payroll tax accounts, work from the federal level down: get an Employer Identification Number from the IRS, then register with your state’s tax and unemployment agencies, enroll in the federal electronic payment system, and put workers’ compensation and new-hire paperwork in place before your first payday. The federal EIN is free and issued online in minutes. The state pieces vary in speed, so start them early.
First, Make Sure You Actually Have an Employee
Payroll tax obligations only attach to employees, not independent contractors, so the classification question comes before any registration. The IRS weighs three categories of evidence: behavioral control (do you direct what, when, and how the work is done), financial control (who supplies tools, how the worker is paid, whether they can profit or lose), and the type of relationship (contracts, benefits, whether the work is central to your business).1Internal Revenue Service. Employee (Common-Law Employee)
Get this wrong and the cost is real. If the IRS reclassifies a contractor as an employee, the employer owes 1.5 percent of wages paid as a substitute for income tax withholding plus 20 percent of the employee’s share of Social Security and Medicare. Those figures double to 3 percent and 40 percent if you also failed to file the required information returns.2Office of the Law Revision Counsel. 26 U.S. Code 3509 – Determination of Employer’s Liability for Certain Employment Taxes If you’re unsure, Form SS-8 asks the IRS for a formal determination, though it takes time.3Internal Revenue Service. About Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding
What to Have in Front of You Before You Apply
Gather these first so you can move through the applications in one sitting:
- The Social Security Number or ITIN of the person applying, whom the IRS calls the “responsible party.”
- The business’s legal name and physical address.
- The business structure: sole proprietorship, LLC, partnership, corporation.
- The date you paid or will pay your first wages.
- Your best estimate of how many employees you expect to hire in the next 12 months and your projected employment tax liability. If that liability will be $1,000 or less for the year, you can file annually on Form 944 instead of quarterly on Form 941. In practical terms, that threshold corresponds to roughly $5,000 or less in total wages subject to Social Security, Medicare, and income tax withholding.4Internal Revenue Service. Employers: Should You File Form 944 or 941?
- Your North American Industry Classification System (NAICS) code. State labor agencies use it to assign your initial unemployment insurance tax rate.
The federal application is Form SS-4, which asks you to check a reason for applying. A new employer picks “Hired employees.”5Internal Revenue Service. Instructions for Form SS-4
Get Your Federal EIN
The EIN is the nine-digit number the IRS uses to track your business tax obligations, and every employer needs one. The fastest route is the IRS online application, which issues your number immediately and delivers a PDF confirmation you can download on the spot. The tool is open Monday through Friday from 6:00 a.m. to 1:00 a.m. Eastern, Saturdays from 6:00 a.m. to 9:00 p.m., and Sundays from 6:00 p.m. to midnight.6Internal Revenue Service. Get an Employer Identification Number
If you can’t apply online, you can fax Form SS-4 and expect a response in about four business days, or mail it and wait four to six weeks. Online is the better option for anyone eligible to use it.
Register Your State Payroll Tax Accounts
Most states require two separate accounts. One handles state income tax withholding and is run by the state’s revenue or taxation department. The other handles state unemployment insurance and is run by the state’s labor or workforce agency. A handful of states have no income tax, which removes the withholding account but not the unemployment registration.
State portals ask for essentially the same information you provided to the IRS. You’ll usually create a login before you can start the forms. Turnaround varies widely. Some states issue account numbers electronically within minutes; others mail them and can take several weeks. Start before your first payroll run is scheduled, not the week of.
Your unemployment insurance rate as a new employer is a standard “new employer rate” for the first two to three years, after which it adjusts based on how many former employees have filed claims against your account. The taxable wage base per employee also varies dramatically by state, running anywhere from $7,000 to over $78,000. Look up your state’s current wage base early so your budgeting reflects it.
Line Up Workers’ Compensation and Any Local Taxes
Workers’ compensation isn’t a tax, but in most states it becomes a legal obligation the moment you hire your first employee, so treat it as part of the same setup. Most states require coverage as soon as you have one employee on payroll. Some states set higher thresholds — three, four, or five employees — and a small number make it optional outside specific industries like construction. Premiums are priced per $100 of payroll and vary by industry risk classification and your claims history. Most states let you buy from private insurers; a few require a state-run fund. Whichever route applies, the policy has to be in place before your first employee starts work.
Roughly 17 states also allow cities, counties, or school districts to impose local income or payroll taxes. These range from small flat monthly fees to percentage-based taxes reaching 2 to 3 percent of wages, and some hit both the employer and the employee. If you operate in one of these jurisdictions, or your employees work there, register with the local tax authority separately. It’s easy to miss and the penalties accumulate quietly.
What You’ll Actually Owe at the Federal Level
Once you’re registered, four federal obligations attach to each payroll:
- Social Security tax: 6.2 percent from you and 6.2 percent from the employee, on the first $184,500 of wages in 2026.7Social Security Administration. Contribution and Benefit Base
- Medicare tax: 1.45 percent from each side, with no wage cap. An additional 0.9 percent Additional Medicare Tax applies to employee wages above $200,000 in a calendar year, withheld from the employee only with no employer match.8Internal Revenue Service. Publication 15 (2026), (Circular E), Employer’s Tax Guide
- Federal Unemployment Tax (FUTA): paid entirely by the employer, never withheld from paychecks. The gross rate is 6.0 percent on the first $7,000 of wages per employee per year, and employers who pay state unemployment on time typically get a 5.4 percent credit, bringing the effective rate to 0.6 percent, or up to $42 per employee. The credit shrinks if your state has outstanding federal unemployment loans.9Internal Revenue Service. FUTA Credit Reduction10Internal Revenue Service. Household Employer’s Tax Guide
- Federal income tax withholding: collected from each employee based on their Form W-4. You don’t match it; you just remit it on the same schedule as FICA.
Enroll in EFTPS and Learn Your Deposit Schedule
Federal payroll deposits move through the Electronic Federal Tax Payment System. Enroll at EFTPS.gov after you have your EIN.11Internal Revenue Service. Form 9779 – Electronic Federal Tax Payment System Business Enrollment Enrollment takes a few days because the IRS mails you a PIN, so don’t wait until a deposit is due.
New employers have no lookback history, so the IRS assigns you a monthly deposit schedule for the first calendar year. Deposits for a given month are due by the 15th of the following month. One exception overrides everything else: if you accumulate $100,000 or more in tax liability on any single day, you must deposit it by the next business day.8Internal Revenue Service. Publication 15 (2026), (Circular E), Employer’s Tax Guide
Missing a deposit deadline triggers a penalty that scales with lateness: 2 percent up to 5 days late, 5 percent between 6 and 15 days, 10 percent after 15 days, and 15 percent if the deposit still isn’t made within 10 days of a delinquency notice.12Office of the Law Revision Counsel. 26 U.S. Code 6656 – Failure to Make Deposit of Taxes Those apply to the underpaid amount, not your whole payroll, but they compound.
Paperwork You Have to Complete for Each New Hire
Two federal requirements attach to every new employee and need to be handled alongside your registrations.
Form I-9 verifies identity and work authorization. The employee completes Section 1 no later than their first day of work for pay.13U.S. Citizenship and Immigration Services. Completing Section 1, Employee Information and Attestation You have three business days from the hire date to review their documents and complete Section 2.14U.S. Citizenship and Immigration Services. Completing Section 2, Employer Review and Attestation
New hire reporting: federal law requires you to report every new employee to your state’s Directory of New Hires within 20 days of their first day, and some states impose shorter deadlines.15Administration for Children & Families. New Hire Reporting The report includes the employee’s name, address, and Social Security Number, and states use it primarily for child support enforcement and unemployment insurance fraud detection.
Keep all employment tax records for at least four years after the date the tax becomes due or is paid, whichever is later — W-4s, quarterly returns, deposit receipts, payroll journals.16Internal Revenue Service. How Long Should I Keep Records State retention requirements sometimes run longer, so verify yours before purging anything.
Should You Use a Payroll Service or a PEO?
Two kinds of outside help exist, and they don’t work the same way. A standard payroll service files taxes under your EIN. You still need your own federal and state accounts, and you’re still legally responsible for every deposit and return. The service just does the math and moves the money.
A Professional Employer Organization enters a co-employment arrangement and typically files employment taxes under its own EIN. That simplifies your compliance load, but it also means you depend on the PEO to actually make the deposits. If you leave a PEO later, you’ll need to obtain your own EIN (if you never got one), register for your own state accounts, and secure your own workers’ compensation coverage. Know what you’re signing up for before you hand any of it off.