What payroll taxes am I responsible for as an employer?

As an employer, you are legally required to withhold federal income tax from your employee's wages. You must also hold back the employee's share of Social Security and Medicare taxes. Beyond withholding from the employee, you are responsible for paying the employer's matching share of Social Security and Medicare taxes out of your own business funds. You must also pay the Federal Unemployment Tax Act (FUTA) tax entirely from your own funds, alongside any state unemployment insurance taxes required by the state where your employee works. Meeting these obligations requires an Employer Identification Number (EIN) and a reliable mechanism to calculate and remit payments accurately. If you are starting a business and need to secure your entity and EIN before running your first payroll, you can handle the setup and compliance in one place through ZenBusiness, which can introduce you to RUN Powered by ADP through its ADP payroll partnership.

The Foundation of Employer Obligations

Running payroll for a single employee triggers the exact same legal and tax obligations as running payroll for a large workforce. The Internal Revenue Service and the Department of Labor do not offer a grace period or a simplified regulatory tier for your first hire. The moment you pay wages to a worker classified as an employee, you step into a strict framework of federal and state tax liabilities.

You cannot run payroll without an Employer Identification Number. The IRS treats the employer as the business entity, not the individual owner, and the EIN is the primary identifier used for all tax filings and wage reports. You must secure this number before you can hire employees, set up a business bank account, or file employment taxes. Attempting to pay an employee without an EIN or out of a personal checking account creates a massive compliance risk.

For many new employers, the process of setting up payroll begins before software is even chosen. A reader who has not separated business and personal money yet must solve the entity and banking problems first. Using a unified service to form the business, obtain the EIN, and set up a proper business account is often the most secure path forward. This sequence ensures you have the legal foundation required before you ever calculate withholding for your first wage payment.

The Core Payroll Taxes

Federal income tax withholding is your first responsibility. You must calculate and hold back a portion of your employee's gross pay based on the information they provide on their tax forms. You do not keep this money. You hold it in trust and remit it to the federal government on a set deposit schedule, which is determined by your total tax liability.

You are also responsible for the Federal Insurance Contributions Act, commonly known as FICA taxes. FICA consists of Social Security and Medicare taxes. You must withhold the employee's share of FICA from their paycheck. Crucially, you must also pay a matching employer share of FICA taxes out of your own business revenue. Both the withheld amount and your employer contribution must be deposited together.

Federal unemployment taxes are another strict liability. You are required to pay FUTA tax to help fund state workforce agencies. Unlike income tax or the employee portion of FICA, FUTA is paid entirely from your own funds and cannot be deducted from your employee's wages. You are also liable for state unemployment insurance taxes, which are distinct from FUTA and paid directly to your state.

Beyond taxes, you must adhere to state-level insurance mandates. Workers' compensation coverage is set by state law. The specific rules, exemptions, and required coverage amounts vary sharply by state, so you must consult your local labor department. You should never assume that your state mirrors the federal rules or the rules of a neighboring jurisdiction.

Mandatory Paperwork and Forms

Proper onboarding documentation is a federal requirement. All U.S. employers must properly complete Form I-9 for every individual they hire for employment in the United States. This form verifies the employee's identity and their legal authorization to work. You must review the employee's original identification documents and keep the completed Form I-9 on file in case of a federal audit.

Tax withholding relies entirely on Form W-4. You must ask all new employees to give you a signed Form W-4 when they start work. The IRS explicitly requires you to make the form effective with the first wage payment. A W-4 remains in effect until the employee gives you a new one.

Employees may experience life changes and update their withholding details. Where a replacement is given, withholding begins 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. You must implement these changes promptly to avoid under-withholding or over-withholding federal income tax.

At the end of the calendar year, you must issue Form W-2 to your employee and file a copy with the Social Security Administration. To do this correctly, you need the employee's name and Social Security Number to enter on Form W-2. Using an incorrect name or SSN can result in processing delays and federal penalties.

The Classification Trap

One of the most dangerous payroll mistakes a single-employee business can make is misclassifying a worker as an independent contractor. Classification turns on control, not on a label or a contract. The IRS weighs three distinct categories to determine if a worker is an employee: behavioral control, financial control, and the type of relationship.

Behavioral control looks at whether you have the right to direct how the worker does their job. Financial control examines whether the business directs the financial aspects of the worker's job, such as reimbursing expenses or providing tools. The type of relationship evaluates factors like written contracts and whether the work is a key aspect of the regular business.

There is no magic or set number of factors that makes the worker an employee or an independent contractor, and no one factor stands alone in making this determination. If you dictate a worker's schedule, provide their equipment, and control their methods, they are almost certainly an employee. Slapping an independent contractor label on the relationship does not protect you from federal scrutiny.

Misclassification has a steep price. An employer who classifies an employee as an independent contractor without a reasonable basis may be held liable for employment taxes for that worker. If you are unsure of a worker's status, Form SS-8 asks the IRS to determine status. Be prepared to wait, as it may take at least six months to receive a determination on your filing.

Obligations for S Corporation Owners

If your business is structured as an S corporation and you perform services for it, you are considered an employee of your own company. S corporations must pay reasonable compensation to a shareholder-employee in return for services that the employee provides to the corporation before non-wage distributions may be made. You cannot simply take owner draws to avoid paying payroll taxes.

The requirement for reasonable compensation ensures that FICA and FUTA taxes are properly assessed on your labor. If you attempt to bypass this requirement by taking all your income as distributions, the IRS will intervene. The agency has the authority to reclassify payments made to shareholders from non-wage distributions to wages. This reclassification can trigger severe back taxes, penalties, and interest.

Pay Frequency and FLSA Recordkeeping

Federal law does not dictate how often you must pay your employee, but state governments strictly regulate payday schedules. Pay frequency is set by state law and varies widely across the country. For example, California requires wages at least twice per calendar month on days designated in advance.

Colorado requires monthly payment schedules, while Connecticut requires weekly payments unless a longer interval is approved by the labor commissioner. Because these statutes differ so dramatically, the Department of Labor notes individuals should consult the relevant state labor office for official information. Paying your employee on a schedule that violates your state's labor laws can result in immediate fines.

Recordkeeping is heavily regulated under the Fair Labor Standards Act. FLSA payroll records are kept three years. This applies to basic payroll records containing the employee's personal information, hours worked, and wages paid.

The records wage computations are based on, including time cards and wage rate tables, must be kept for two years. Maintaining accurate and compliant records is your only defense in the event of a wage dispute or a Department of Labor investigation. Proper payroll software will automate much of this retention, but the legal liability remains with you.

Software to Handle the Obligations

Handling these requirements manually is prone to calculation errors and missed deposit deadlines. Most single-employee businesses use software to calculate taxes, remit payments, and generate the necessary forms. The market offers a variety of solutions, listed alphabetically below.

ADP is one of the most established processors in the industry. It handles all federal, state, and local tax filings, alongside direct deposit and W-2 generation. ADP does not publish payroll pricing and quotes per business.

Gusto automates payroll runs, tax filings, and compliance forms. As of October 6, 2026, the Simple plan is $49 per month plus $6 per person. The Plus plan is $80 per month plus $12, and the Premium tier is $180 per month plus $22.

OnPay provides full-service payroll, including automated tax payments and W-2 filings, without tiered feature restrictions. As of October 6, 2026, the cost is $49 per month plus $6 per worker. The public page quotes a start price of $55 per month for a single-employee business.

Patriot Software offers two distinct payroll tiers. As of October 6, 2026, Basic Payroll is $17 per month plus $4 per employee, which requires you to handle your own tax deposits. Full Service, which handles taxes for you, is $37 per month plus $5. Patriot is cheaper at the very bottom end of the market.

QuickBooks Payroll integrates deeply with the QuickBooks accounting ledger. As of October 6, 2026, Workforce Payroll + Simple Start is $88 per month plus $6.50 per employee. The Essentials tier is $125 per month plus $6.50, and Workforce Premium + Plus is $203 per month plus $10. QuickBooks offers a promotional rate of 50 percent off the base for three months, which is not the ongoing price.

Square Payroll is built for businesses that already use Square's point-of-sale hardware, seamlessly importing timecards. As of October 6, 2026, full-service payroll is $35 per month plus $6 per person. Square is hard to beat for contractor-only payment, offering a specialized plan at $6 per contractor per month.

SurePayroll caters directly to small businesses and household employers. As of October 6, 2026, standard payroll starts from $29 per month plus $7 per worker. A multi-state add-on is $9.99 per month, and specialized household payroll starts at $39 per month.

ZenBusiness houses the complete setup for a new employer, offering formation, the registered agent, the EIN, bookkeeping, and a website. As of October 6, 2026, the Starter plan is $0 plus state fees, Pro is $199, and Premium is $299. Pro and Premium renew at their annual prices, and the EIN and operating agreement are included from Pro up and are $99 each on Starter. Registered agent service is $199 per year, Money Pro is $30 per month, and the website is $129 per year.

ZenBusiness recommends RUN Powered by ADP for payroll processing. Payroll itself is ADP's, quoted by ADP per business, and not included in any ZenBusiness plan price. ADP is a separate service with its own platform, its own billing, and its own support, and is not integrated into the ZenBusiness dashboard. A ZenBusiness customer requesting the connection may be eligible for promotional pricing from ADP.

Sources

This article provides general information rather than legal, tax, or accounting advice, and local requirements vary and change.