Module 3: Employment and Withholding Taxes


As a business owner, you may consider hiring
employees at some point. If you are, congratulations! That means your business is probably doing
well. As an employer though, keep in mind that you
are not considered an employee for withholding purposes. That means you do not need to register
yourself for withholding to pay your own income taxes.
If you expect to owe more than $400 in Massachusetts income tax on the income received from your
business, you are required to make those individual estimated income payments we discussed in
Module 1. OK, it’s time to hire an employee or two.
What next? First, as an employer, you’re legally required
to withhold Massachusetts personal income tax from the wages of any employee who resides
or is employed here in Massachusetts. There are also a number of items you must
do as an employer. Register to collect withholding tax online.
Again, think about getting a federal identification number from the IRS first!
Obtain a completed exemption Forms W-4 and M-4 from each employee
These two forms are completed by your employees and show how many exemptions they’re claiming
for federal and Massachusetts income tax withholding. File quarterly wages paid and unemployment
insurance reports as required. These programs are not administered by the
Department of Revenue, so you’ll need to file these reports through the Massachusetts Department
of Unemployment Assistance’s DUI Online website. You may also want to check with the Department
of Industrial Accidents about Workers Compensation laws.
Provide each employee with a W-2 Form by January 31 every year.
Report all new hires or independent contractors within 14 days of hire through Many business owners have questions about
what makes someone an independent contractor, so let’s briefly touch on how that works.
If you have the right to control and direct the details and manner in which a person’s
job is to be accomplished or control how, when and where they perform their job, you
have hired an employee.. If you don’t, the person is most likely an
independent contractor. Independent contractors are essentially self-employed
people who have freedom to determine what will be done and how they will do it. A good
example of an independent contractor is a stylist renting a space at a hair salon.
There are more things to consider when talking about independent contractors, so please take
a look at the IRS website for further information about whether someone you bring on is an independent
contractor or an employee. Thanks for watching DOR University’s Small
Business Class! We hope you found some useful information that will help make starting and
running our business less daunting. Please take a minute to give us your feedback
about this course–what you liked, and what we could do to improve and make it more useful.

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