The words the IRS, your state, and HR professionals use — explained without assuming you already know what they mean.
A nine-digit number assigned by the IRS to identify your business for tax purposes. You need one before you can run payroll, file business tax returns, or open a business bank account. You apply for an EIN online at IRS.gov at no cost. Once assigned, it belongs to your business permanently.
The U.S. Treasury's system for making federal tax deposits. Employers use EFTPS to deposit withheld payroll taxes — including federal income tax, Social Security, and Medicare withholdings. Enrollment is free and required if you have payroll tax deposit obligations. Payments must be submitted by the deposit deadline, which is not the same as your tax filing deadline.
A legal distinction the IRS makes based on the nature of the working relationship, not the title you give someone. Employees have taxes withheld by their employer. Independent contractors handle their own tax obligations. The IRS uses behavioral control, financial control, and the type of relationship to make this determination. See Blueprint 01 for a full breakdown.
The federal law that establishes Social Security and Medicare taxes. Both employees and employers pay FICA taxes. The employee's share is withheld from their paycheck. The employer's matching share is paid separately. Together, FICA taxes fund Social Security retirement benefits, disability benefits, and Medicare health coverage.
The annual federal tax return you file to report and pay Federal Unemployment Tax Act (FUTA) taxes. Filed once per year, generally by January 31 of the following year. The FUTA tax rate applies to the first portion of each employee's wages. Many states allow a credit that reduces the effective federal rate significantly — the form instructions explain how this credit is calculated.
The quarterly federal tax return that reports wages paid, federal income tax withheld, and both employee and employer Social Security and Medicare taxes. Filed four times per year: for Q1 by April 30, Q2 by July 31, Q3 by October 31, and Q4 by January 31. This is separate from your actual tax deposits — you're required to make deposits on schedule whether or not you've filed Form 941.
The annual wage and tax statement you provide to each employee and the Social Security Administration. Shows total wages paid and all taxes withheld during the tax year. Must be provided to employees by January 31 of the following year. Copies are also filed with the SSA using Form W-3, the transmittal form.
The withholding certificate completed by your employee when they start work. Tells you how much federal income tax to withhold from their pay based on their filing status, other income, deductions, and credits. Employees can update their W-4 at any time. The IRS updated the W-4 significantly in 2020, replacing the allowances system with a more direct approach.
The form you use to report payments of $600 or more made to independent contractors during the year. "NEC" stands for nonemployee compensation. Must be provided to contractors and filed with the IRS by January 31. If you misclassify an employee as a contractor and issue a 1099-NEC, you may be liable for the taxes that should have been withheld.
The federal law that funds unemployment benefits at the federal level, working alongside state unemployment programs. Employers pay FUTA tax — employees do not. The tax applies to the first portion of each employee's wages each year. Most employers pay a reduced effective rate because of a credit for state unemployment taxes paid. Reported on Form 940.
An employee's total earnings before any deductions. The amount you agree on when you negotiate salary or hourly rate. Payroll taxes, benefit deductions, and any other withholdings are subtracted from gross pay to arrive at net pay — what the employee actually takes home.
A self-employed worker who provides services to your business without being an employee. They set their own schedule and methods, typically work for multiple clients, and handle their own taxes including self-employment tax. You do not withhold taxes from their pay, but you may need to issue a Form 1099-NEC if you pay them $600 or more in a year.
A federal form required for every employee you hire in the United States. Documents that the employee is authorized to work in the U.S. You must complete the employer section and verify acceptable documents provided by the employee within three business days of their start date. I-9 forms must be retained for a specific period after employment ends — see the USCIS instructions for current retention requirements.
Part of FICA. Both employer and employee each pay a Medicare tax rate on all wages — there is no wage base cap for Medicare, unlike Social Security. High-income employees may also be subject to an Additional Medicare Tax on wages above a threshold, which is withheld from the employee's pay only (no employer match).
How often you pay your employees — weekly, biweekly (every two weeks), semi-monthly (twice a month), or monthly. Your payroll schedule affects your tax deposit schedule and your cash flow planning. State laws may impose minimum frequency requirements; some states require at least twice-monthly payment for certain types of employees.
The IRS-determined schedule for when you must deposit withheld payroll taxes. Determined by your lookback period — the 12-month period ending June 30 of the prior year. Employers who owed $50,000 or less in payroll taxes during the lookback period are monthly depositors. Those who owed more are semi-weekly depositors. New employers default to monthly. The deposit schedule is separate from your quarterly Form 941 filing.
The requirement to file Form 941 four times per year, once for each calendar quarter. Each filing reports wages paid and taxes withheld during that quarter. Even if you've been making timely deposits, you still need to file the quarterly return. Failure to file carries separate penalties from failure to deposit.
The tax that covers Social Security and Medicare for people who work for themselves. When you have employees, they pay the employee half of FICA and you pay the employer half. As a self-employed person before you had employees, you paid both halves yourself — that was self-employment tax. Your employees do not pay self-employment tax; they pay their half of FICA.
Part of FICA. Both employer and employee each pay a Social Security tax rate on wages up to the annual Social Security wage base (which adjusts each year). Wages above the wage base are not subject to Social Security tax for that year, though they remain subject to Medicare tax. The wage base is published each year by the Social Security Administration.
The state-level equivalent of FUTA. Each state runs its own unemployment insurance program funded by employer payroll taxes. SUTA rates vary by state and also vary based on your "experience rating" — how many of your former employees have claimed unemployment benefits. New employers typically start at a state-determined new-employer rate.
An employee whose wages are reported on Form W-2. As a W-2 employer, you withhold federal and state income taxes, Social Security, and Medicare from their pay and remit them to the appropriate agencies. You also pay the employer-side payroll taxes, provide workers comp coverage, and comply with applicable employment laws. The W-2 relationship involves more obligations than a 1099 relationship.
Insurance required by most states that covers employees who are injured or become ill as a result of their work. Pays medical costs and partial wage replacement. A no-fault system in most states, meaning employees don't need to prove employer negligence to receive benefits. Requirements vary by state — some require coverage from your first employee, others have different thresholds. See Blueprint 03 for a full explanation.
The process of deducting taxes from an employee's paycheck before they receive it. You withhold federal income tax (based on the employee's W-4), Social Security tax, and Medicare tax. You may also withhold state income tax and other local taxes depending on where your employee works. Withheld amounts are held in trust and must be deposited with the IRS on schedule — they are not your money.
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