Social Security Numbers
You must get each employee’s name and SSN because you must enter them on Form W-2. (This requirement also applies to resident and nonresident alien employees.) You should ask your employee to show you his or her social security card. The employee is required to show the card if it is available. You may, but are not required to, photocopy the social security card if the employee provides it. If you do not provide the correct employee name and SSN on Form W-2, you may owe a penalty.
SSA issues three types of Social Security cards. The first type of card is the card most people have and has been issued since 1935. It shows the person’s name and Social Security number, and it lets the person work without restriction. SSA issues it to U.S. citizens and people lawfully admitted to the United States with permanent work authorization.
The second type of card bears the legend ‘NOT VALID FOR EMPLOYMENT.’ SSA issues it to people from other countries lawfully admitted to the United States without work authorization from the Immigration and Naturalization Service (INS), but who need a number because of a federal law requiring a Social Security number, such as to get a federal benefit or to enlist in the U.S. military.
The third type of card bears the legend, ‘VALID FOR WORK ONLY WITH INS AUTHORIZATION.’ SSA issues it to people lawfully admitted to the United States on a temporary basis with INS authorization to work.
An employee without a Social Security Card can obtain one by completing a Form SS-5, Application for a Social Security Card. The form can be acquired at your local Social Security Administration office or by calling 1-800-772-1213.
For more information go to the Social Security Administration website.
Immigration and Naturalization Service Form I-9
The I-9 provides the employer with proof of an employee’s identity and right to work in the United States. All employees, citizens, and non-citizens hired after November 6, 1986 are required to complete a Form I-9. Both employer and employee must complete Form I–9, Employment Eligibility Verification. The form will be kept by the employer and made available for inspection by officials of the U.S. Immigration and Naturalization Service, the Department of Labor, and the Office of Special Counsel for Immigration Related Unfair Employment Practices. To obtain additional information, you may obtain the INS Handbook for Employers at your local INS office. Employers that knowingly hire illegal aliens can face severe civil penalties.
Photocopying and Retaining Form I-9. A blank I-9 may be reproduced provided both sides are copied. The Instructions must be available to all employees completing this form. Employers must retain completed I-9s for three (3) years after the date of hire or one (1) year after the date employment ends, whichever is later.
For more information go to the Immigration and Naturalization Service website.
Advance Earned Income Credit (EIC)
To qualify for Advance Earned Income Credit an employee must meet all three of the following: (1) have at least one qualifying child, (2) meet the current year income restrictions, and (3) expect to be able to claim the Earned Income Credit for the current year. You must notify employees who have no income tax withheld that they may be able to claim a tax refund because of the EIC. If the employee is eligible, he or she must also fill out a W-5. The W-5 expires each year on December 31. To be eligible for EIC the following year a new W-5 is required.
For additional information, consult the IRS Publication 15, Circular E or go to the Internal Revenue Service website at http://www.irs.gov.
Certain employees who do not have a qualifying child may be able to claim the EIC on their tax return. However, they cannot get advance EIC payments.
Paying the advance EIC to employees. An advance EIC payment is not wages and is not subject to withholding of income, social security, or Medicare taxes. An advance EIC payment does not change the amount of income, social security, or Medicare taxes you withhold from the employee’s wages. You add the EIC payment to the employee’s net pay for the pay period. At the end of the year, you show the total advance EIC payments in box 9 on Form W-2. Do not include this amount as wages in box 1.
For more information go to the Internal Revenue Service Web Site.
In addition to the federal income tax, state governments can impose an additional income tax. Currently, all but nine states have state personal income taxes and require employers to deduct and withhold from employees’ wages to satisfy these obligations. The nine states that do not impose a state income tax include: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. For more information about rates, forms, exemptions, and withholding, please contact the appropriate state income tax agency below.
- Delaware Division of Revenue, Withholding Division
- New Jersey Department of the Treasury, Division of Taxation
- Pennsylvania Department of Revenue, Bureau of Business Trust Fund Taxes, Employer Tax Division
Local income tax can come from cities, counties and school districts. Since this is a broad area, you’ll have to check with your individual localities to see if they have a local income tax. Contact your Local taxing agency for rates, forms, exemptions, and withholding regulations.
State Disability Insurance
California, Hawaii, New Jersey, New York, Puerto Rico, and Rhode Island provide temporary disability benefits for employees disabled by a non-work related illness or injury through a tax supported state fund. A tax payment similar to the unemployment insurance tax may be required by both the employee and employer. Employers that have employees in any of these states should review the state laws carefully for their obligations regarding contribution, withholding, reporting, etc.
IRS Form W-4 Employee Withholding Allowance Certificate
To know how much federal income tax to withhold from employees’ wages, you should have a Form W-4, Employee’s Withholding Allowance Certificate, on file for each employee. Ask all new employees to give you a signed Form W-4 when they start work. The amount of income tax to withhold must be based on marital status and withholding allowances. It also tells the employer if an employee is claiming exempt for withholding. Employees may not base their withholding amounts on a fixed dollar amount or percentage. However, the employee may specify a dollar amount to be withheld in addition to the amount of withholding based on filing status and withholding allowances claimed on Form W-4. A W-4 form is invalid if it has been altered or unauthorized additions have been made to it. It also becomes invalid if the employee tells the employer the information is false.
Make the form effective with the first wage payment. If a new employee does not give you a completed Form W-4, withhold tax as if he or she is single, with no withholding allowances. A Form W-4 remains in effect until the employee gives you a new one. If an employee gives you a Form W-4 that replaces an existing Form W-4, begin withholding no later than the start of the first payroll period ending on or after the 30th day from the date you received the replacement Form W-4.
Send in Forms W-4 that meet either of the above conditions each quarter with Form 941. Complete boxes 8 and 10 on any Forms W-4 you send in. You may use box 9 to identify the office responsible for processing the employee’s payroll information.
For more information go to the Internal Revenue Service website.