Stay compliant, and free time to focus on growing your business, with full-service, outsourced small business payroll services.
Hiring an employee to join your team is exciting. But, with the label of “employer,” comes extra legal and financial responsibility imposed by federal, state, and local governments. Ohio Payroll Services is designed to ease this burden on Ohio’s small businesses with a local, online solution to payroll taxes. We also offer several related (optional) tax services, including 1099 vendors, sales tax, and commercial activity tax reporting.
Employer’s payroll obligations and best practices
New employers are surprised to learn about the plethora of regulations, which spring into action when they hire their first employee. For instance, Ohio employers must obtain certain documentation from a new hire, report the hire to the state of Ohio, withhold and remit employee and employer taxes to government agencies, file periodic information returns, and purchase workers’ compensation and unemployment insurance. Best practice also dictates using the Social Security Number Verification System to verify an employee’s social security number. Fortunately, Ohio Payroll Services can manage this regulatory maze for you. We are exclusively dedicated to working with small businesses (less than 20 employees) operating in Ohio.
New hire documentation
When you hire an employee, you are required by law to obtain certain documentation. Ohio Payroll Services will timely process your new hires and store the completed paperwork to ensure legal conformity.
Form I-9 Employment Eligibility Verification
The I-9 form, authorized by the Department of Homeland Security, verifies an employee’s identity and authorization to work in the United States. The form includes an employee and employer section and requires the employee to provide identity verification. Most often, the identity verification is satisfied by making a copy of the employee’s driver’s license and social security card. A passport may also verify identity.
Form W-4 Employee’s Withholding Allowance Certificate
If you were ever employed, you probably remember completing a W-4 form. This Internal Revenue Service form enables an employer to calculate the correct federal income tax to withhold from an employee’s paycheck. Remember, when you hire an employee, as opposed to paying a contractor, the law requires you to deduct the employee’s federal income tax liability each pay period and periodically pay these amounts to the United States Treasury.
Form IT-4 Ohio Employee’s Withholding Exemption Certificate
Form IT-4 is Ohio’s version of form W-4 and allows an employer to determine the exact Ohio income tax to withhold each pay period.
Form IT-4NR Employee’s Statement of Reciprocity in a Resident State
Ohio maintains a reciprocity agreement with Kentucky, Indiana, Michigan, Pennsylvania, and West Virginia; thus, employees residing in one of these border states that work in Ohio pay income tax to the state of their residence, not Ohio. To document non-residence, employees must sign the form IT-4NR, and employers should maintain the signed form.
Direct deposit authorization
Employees that want to receive payment by direct deposit should complete an authorization form allowing you (and your agents, if applicable) to make certain ACH transfers into their accounts. At this time, we also recommend that you obtain a voided check.
New hire reporting
Employers must report new employee hires (and certain independent contractors) to the state of Ohio within 20 days of the date that payments begin. The objective of the new hire reporting law is to expedite collection and recovery of child support, particularly from non-custodial parents. We report all new hires using Ohio’s online reporting center, although the state continues to allow reporting using the Ohio New Hire Reporting form.
Federal, state, and local governments impose payroll taxes. As such, good payroll accounting practices are essential to small businesses. Because the rules are complex, Ohio Payroll Services offers a solution to simplify and outsource this important responsibility placed on small business owners.
Federal payroll tax
Most small businesses with employees remit payroll taxes to the United States Treasury on a monthly or semiweekly schedule. The frequency with which you are required to deposit is determined by the amount paid in a look back period. New employers start as monthly depositors the first year (unless a special $100,000 next-day deposit rule applies), and federal employer taxes are due by the 15th day of each month.
Federal payroll tax deposits include six components:
- Employee’s federal income tax withheld;
- Employee’s social security tax withheld;
- Employee’s medicare tax withheld;
- Employer’s social security tax;
- Employer’s medicare tax; and
- Employer’s federal unemployment tax (FUTA tax).
Thus, federal payroll tax deposits are not just taxes withheld from an employee’s paycheck. The employer is responsible for half of the social security and medicare tax burden, as well as the entire FUTA tax.
State withholding tax
Ohio employers also withhold and remit an employee’s Ohio income tax on a periodic basis determined by previous payments in a look back period. Employees that reside in a bordering state, working in Ohio, do not owe Ohio income tax, based on the reciprocity agreements Ohio maintains with each of the bordering states. They would owe income tax to the state of their residence, but employers operating exclusively in Ohio are not required to withhold and remit state income taxes to bordering states.
For example, Marie lives in Kentucky but works for an employer in Ohio. The employer does not maintain business operations in Kentucky and chooses not to register with Kentucky to withhold state income tax for Marie. In this scenario, Marie is responsible to file and pay her state income taxes.
Local withholding tax
Ohio is one of a few states that allows employee income tax by local jurisdictions. Municipalities impose local income tax on businesses and employees operating in their jurisdictions, as well as residents. Most municipalities provide a credit to residents who pay local income tax to another municipality where they work. Voters may also approve local school district income taxes. An employer’s responsibility to withhold local income tax is determined by work location. Although permitted, we do not recommend that small employers withhold an employee’s local income tax based on residence.
Employer payroll tax returns
In addition to making tax deposits, employers are required to file certain information returns on a periodic basis. Ohio Payroll Services will complete and submit these forms for you in a timely fashion. As a result, when you sign-up for our payroll services, you can carry on in your business with the assurance of knowing that payroll tax reporting deadlines will be met.
- Form 941 Employer’s Quarterly Federal Tax Return
- Form 940 Employer’s Annual Federal Unemployment (FUTA) Tax Return
- Form W-2 Wage and Tax Statement
- Ohio IT 3 Transmittal of Wage and Tax Statements
- Ohio IT 941 Ohio Employer’s Annual Reconciliation of Income Tax Withheld
- Ohio JFS 20127 OH Wage Detail and Quarterly Summary Report
- Local withholding tax and reconciliation forms
Workers’ compensation and unemployment insurance
Making the transition from sole proprietor or partnership, with no employees, to employer is a major step for small businesses. When you hire your first employee, you begin to pay workers’ compensation and unemployment insurance. Workers’ compensation provides your employees insurance coverage for work-related injuries. Federal and state unemployment insurance creates a fund to pay compensation to employees who lose their jobs. The costs of workers’ compensation and unemployment insurance are significant, in particular, with industries like construction, where accident incident rates are high, and seasonal layoffs are typical. At Ohio Payroll Services, our objective is to help you understand these real costs when you are making strategic hiring and compensation decisions.
Social security number verification
Registration with the Social Security Administration’s business services online division allows us to take an extra step in verifying a new hire’s social security number directly with the responsible federal agency. Confirmation is always best practice but can prove particularly useful when the employee cannot provide an authentic social security card, or in situations where the employee will be exposed to sensitive financial or personal data. Avoid the hassle of correcting W2s and ensure your employees receive proper credit for paying into the Social Security system.
Other related (optional) tax services
Our related tax services include 1099 vendors, sales tax, and commercial activity tax reporting. Outsource these administrative requirements by simply adding one or more of these features to our core payroll service.
When you pay a vendor $600 or more for services rendered to your business, you may need to report the income to this contractor, and the IRS, by annually filing form 1099-NEC. The IRS is now requiring you to answer whether you filed (or will file) required 1099s directly on business tax returns. Failure to file 1099s may impact your ability to later claim these business-related payments as tax deductions, in particular, if you are subject to audit.
Certain businesses are required to register as vendors with the state of Ohio and to collect sales tax when payment is received. These vendors report and pay sales tax on a monthly basis via the Ohio Business Gateway. Failure to collect and remit sales tax can result in fines, penalties, and, in egregious cases, criminal charges.
Commercial activity tax
CAT tax, as it’s informally known, is a gross receipts tax imposed on businesses operating in Ohio with sales of at least $150,000. The tax return is due each May.
As you can see, hiring your first employee is a major endeavor. Ohio Payroll Services is dedicated to staying on top of the ever-changing tax rules and regulations employers must navigate. For a reasonable monthly fee, you can unlock your most valuable commodity, time. To learn more, give us a call today at (513) 460-7691 for a free initial consultation.