How to Register for Payroll Tax: Federal, State, and Employee Steps

To register for payroll tax, get a federal Employer Identification Number from the IRS, enroll in the Electronic Federal Tax Payment System, open withholding and unemployment accounts with your state agencies, and put a workers’ compensation policy in place before your first employee starts. Most of these steps run online and finish within a few days, but one piece still arrives by mail, so start early. Registration also locks you into a deposit schedule and reporting calendar the moment you pay your first wages.

Step 1: Get an Employer Identification Number

Your EIN is the nine-digit number the IRS uses to identify your business. You need it before anything else on the payroll side can move. The fastest route is the IRS online application, which is free and issues the number immediately upon approval. The tool runs Monday through Friday, 6:00 a.m. to 1:00 a.m. Eastern, with limited weekend hours. You can apply for one EIN per responsible party per day.¹

To use the online tool, your principal place of business must be in the United States or a U.S. territory, and you need the Social Security number or ITIN of the person who controls the entity. Businesses based outside the U.S. apply by phone, fax, or mail using Form SS-4. The application asks for your legal business name exactly as it appears on your formation documents, your physical address, the date you first paid or expect to pay wages, and your estimated employee count for the next twelve months.²

If you’re forming a new LLC or corporation, register the entity with your state first, then apply for the EIN. Print the confirmation letter and keep it with your records. Once the number is assigned, you’re on the hook for any tax and information returns that apply to your business going forward.¹

Step 2: Enroll in the Electronic Federal Tax Payment System

With the EIN in hand, the next step is EFTPS, the platform you’ll use to send federal payroll tax deposits to the U.S. Treasury. Enrollment is required for most employers.³

Go to eftps.gov, choose business enrollment, and enter your EIN with your bank account details. After you submit, the IRS validates the information and the Treasury mails a personal identification number (PIN) to your IRS address of record. This typically takes five to seven business days.³

Your account stays inactive until you receive the PIN and enter it into the portal. Only then can you schedule and track payments. That mailed step is the single bottleneck in an otherwise digital process, so enroll well before your first payday. If a deposit comes due before the PIN arrives, you still owe it, and a late deposit triggers penalties whether your account is fully activated or not.

Step 3: Open a State Withholding Account

Federal registration is only half the picture. Most states require employers to open a withholding account so they can remit the state income tax deducted from employee paychecks. Many states run a consolidated business registration portal where you can apply for this account alongside other tax accounts. You’ll typically need your EIN, the date you first paid wages, and an estimate of your monthly withholding. Once approved, the state issues an employer account number that goes on all your state tax filings.

Multi-state employees add complexity. About half the states have reciprocal tax agreements with at least one neighbor, meaning you withhold only for the employee’s home state once they file the appropriate exemption form. Reciprocity affects state and local taxes only. Federal payroll tax obligations don’t change.

Step 4: Register for State Unemployment Insurance

Separately from withholding, you must register for a State Unemployment Insurance (SUI) account through your state’s department of labor or workforce agency. SUI is employer-paid, similar to federal unemployment tax but at the state level. When you first register, the state assigns you an initial rate based on industry averages because you don’t yet have a claims history. Over time, your rate adjusts based on claims filed against your account by former employees.

Taxable wage bases vary sharply. In 2026, the range runs from $7,000 in some states to over $78,000 in others. Higher-wage-base states cost significantly more, even when the headline tax rate looks similar.

Step 5: Put Workers’ Compensation Insurance in Place

Workers’ compensation isn’t a payroll tax, but it’s a registration step that runs parallel to payroll setup and catches many new employers off guard. Nearly every state requires employers to carry coverage, which pays medical costs and lost wages when employees are injured on the job. A few states operate monopolistic funds where coverage must be purchased through a state-run program. Texas is a notable outlier where most private employers can opt out, though doing so exposes them to civil lawsuits without the liability protections the system normally provides.

Rates are typically expressed as a dollar amount per $100 of payroll and depend on your industry, claims history, and state. Office-based businesses pay far less than construction or manufacturing operations. Penalties for operating without required coverage vary by state and can include daily fines, work-stop orders, and criminal charges against company officers. Get the policy in place before your first employee’s start date.

Employee Paperwork You Need Before the First Paycheck

Registration with tax agencies is only part of compliance. Federal law also requires you to collect specific forms from each employee and report the hire itself. Missing these steps exposes you to fines.

Form W-4

Every new employee should give you a signed Form W-4 when they start. The W-4 tells you how much federal income tax to withhold based on filing status and any adjustments. Make it effective with the first wage payment. If a new employee doesn’t provide a completed W-4, withhold as if the person is single with no other adjustments, which usually means the highest withholding amount.⁴

Form I-9

Federal law requires you to verify every employee’s identity and work authorization by completing Form I-9. Keep the form on file for as long as the employee works for you, plus a retention period afterward: three years after the date of hire or one year after employment ends, whichever is later. For someone who works less than two years, you hold the form for three years from the hire date. For someone who stays longer, you hold it for one year after they leave.⁵

New Hire Reporting

Every employer must report each new hire to a state directory of new hires. The report includes the employee’s name, address, and Social Security number, the date they first performed services for pay, and your business name, address, and EIN. Federal law sets the deadline at 20 days from the hire date. Employers who transmit electronically can meet the requirement through two monthly transmissions spaced 12 to 16 days apart.⁶ Some states add data points and set shorter deadlines, so confirm your state’s requirements.

What Registration Commits You To

Once you’re registered, the IRS assigns you a deposit schedule that governs how often you send in withheld taxes. New employers without a lookback period start on a monthly schedule unless their tax liability exceeds $50,000 during the first year, which moves them to semi-weekly. Monthly depositors deposit each month’s taxes by the 15th of the following month. Semi-weekly depositors face tighter windows tied to their actual payday.⁷

Most employers file Form 941 each quarter to reconcile the deposits made during that period. Due dates are April 30, July 31, October 31, and January 31 for the fourth quarter of the prior year. If you deposited all taxes on time, you get an extra 10 calendar days to file.⁸ Very small employers with total annual employment tax liability of $1,000 or less may qualify to file Form 944 once a year instead, but only with IRS notification or approval.⁹

Federal unemployment tax is reported annually on Form 940, due January 31. If your accumulated FUTA liability exceeds $500 in any quarter, deposit it by the last day of the month following that quarter rather than waiting until year-end.¹⁰

What Late Registration and Missed Deposits Cost

Penalties start accruing the moment you miss a deadline. Failure-to-deposit penalties escalate with lateness: 2% of the undeposited amount at 1 to 5 days late, 5% at 6 to 15 days, 10% at 16 or more days, and 15% once you’re more than 10 days past the first IRS notice. Paying taxes directly with your return instead of depositing through EFTPS also triggers a 10% penalty in most cases.¹¹

Filing a return late costs 5% of the unpaid tax on that return for each month or partial month it stays unfiled, capped at 25%. That cap represents a quarter of the tax bill on top of the tax itself.¹¹

The most severe exposure comes from the Trust Fund Recovery Penalty. When you withhold income tax and the employee’s share of Social Security and Medicare, that money is held in trust for the government. If you collect it but don’t send it in, the IRS can assess the penalty against any responsible person who willfully failed to deposit the funds. The penalty equals 100% of the unpaid trust fund tax, plus interest.¹²

A responsible person can be a corporate officer, partner, sole proprietor, or an employee with authority over the business’s finances. Willfully doesn’t require malicious intent. It includes voluntarily choosing to pay other business expenses instead of depositing the withheld taxes. This penalty reaches individuals personally, so payroll taxes should be the first bill you pay, not the last.¹²

At year-end, W-2s carry their own penalty schedule. For returns due in 2026, the fine is $60 per form if corrected within 30 days, $130 if corrected by August 1, and $340 per form after that. Intentional disregard of the filing requirement jumps to $680 per form with no maximum cap.¹³

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Internal Revenue Service. Get an Employer Identification Number
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Internal Revenue Service. Employer Identification Number
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Electronic Federal Tax Payment System (EFTPS). Welcome to EFTPS Online
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Internal Revenue Service. Hiring Employees
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U.S. Citizenship and Immigration Services (USCIS). Retaining Form I-9
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Office of the Law Revision Counsel. United States Code Title 42 – 653a State Directory of New Hires
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Internal Revenue Service. Topic No. 757, Forms 941 and 944 – Deposit Requirements
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Internal Revenue Service. Employment Tax Due Dates
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Internal Revenue Service. 2025 Instructions for Form 944
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Internal Revenue Service. Topic No. 759, Form 940, Employers Annual Federal Unemployment Tax Return
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Internal Revenue Service. Publication 15 (2026), (Circular E), Employers Tax Guide
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Internal Revenue Service. Trust Fund Recovery Penalty
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Internal Revenue Service. Information Return Penalties