In short, every employer must do the following:

Federal Payroll Tax Obligations For Employees

• Have employees complete all legally required forms.
• Determine whether federal tax coverage rules apply.
• Compute employees' taxable wages.
• Determine employee withholding amounts.
• Calculate which taxes and the amount of employment taxes to be withheld and paid by the employer.
• Deposit the correct amount of employment taxes with the government.
• File employment information returns with the appropriate agencies to report the earnings and withholding of each employee, total withholding amounts and other information.
• Provide employees with year-end information that they will then use to prepare their individual taxes.

Federal Payroll Tax Obligations For Independent Contractors

Payroll obligations associated with hiring contractors are minimal compared to your obligations when you hire employees. When you hire a contractor, you must simply:

• File employment information returns with the appropriate agencies to report amounts paid to independent contractors.
• Provide contractors with year-end information that they will then use to prepare their individual taxes.