Before you hire your first employee in the state of Massachusetts you should understand what is required of you as an employer. Every company that pays employees in the state of Massachusetts has specific administrative and tax obligations. Not fulfilling these obligations could result in the loss of the Company's charter and hefty fines.
Federal Employer Identification Number (EIN)
If you plan to be an employer in the state of Massachusetts or any other state, you will need a Federal Employer Identification Number, commonly called an EIN or FEIN. You will need to get an EIN before you hire any employees.
An EIN is like a Social Security Number for a business. It is assigned by the US Internal Revenue Service (IRS). An EIN is used to identify your business both to the IRS and the state of Massachusetts.
You can pay a business services company to get your EIN or you can do it yourself online at the IRS website.
You should understand the information that the IRS requires for your EIN before you try to get it online. Refer to IRS Form SS-4 for guidance.
Depending on the exact nature of your business you may need to register one or more employer accounts with the state of Massachusetts. You will need your EIN in order to complete the registration process.
Massachusetts State Tax ID
If you plan to make a profit in the state of Massachusetts, then you will have to register your business with the Massachusetts Department of Revenue. There are a few tax classifications that are available to a Massachusetts business. You should understand the nature of each tax classification type and the implications to your business before you register for a Massachusetts State Tax ID.
All new Massachusetts employers should register wit the Department of Revenue for an Income Tax Withholding account. The Department maintains a web site - MassTaxConnect - on which an employer may register, submit required reports and remit Withholding Tax payments.
Department of Revenue Contact Information
100 Cambridge Street
Boston, MA 02204
Register as a Massachusetts Employer
All new Massachusetts employers should register with the Department of Unemployment Assistance for an Unemployment Insurance account.
Income and Payroll Tax Withholding
The state of Massachusetts has a Personal Income Tax. When you pay wages to your Massachusetts employees, those employees will have an Income Tax obligation with the Massachusetts Department of Revenue on the wages that you pay them. The Department of Revenue wants to make sure that they get the taxes due them from your employees.
In order to guarantee that the state gets its taxes, every Company which has employees in the state of Massachusetts has specific employee Income Tax Withholding requirements. This includes both filing reports and paying the Withholding amounts on a regular basis, usually quarterly. Income Tax is withheld from employees' wages. There are no employer contributions.
Generally, if someone who works for you is considered to be your employee for Federal Income Tax purposes, that person is also considered to be your employee for Massachusetts Income Tax purposes.
As a Massachusetts employer you are also required to withhold Federal Payroll and Income taxes from your employees' wages. Payroll taxes include Social Security and Medicare taxes. Employers send the withheld amounts to the federal government.
The US Internal Revenue Service requires that every employee must provide an employer with a signed withholding exemption form, IRS Form W-4, on or before the date of employment. The employer must then submit Form W-4 to the IRS. Employers use Form W-4 to determine how much Income and Payroll Tax to withhold from each employee's wages. Note that independent contractors are not considered to be employees.
The amount withheld for each employee is expected to be the employee's approximate tax obligation to both the state of Massachusetts and the federal government.
The Massachusetts Unemployment Insurance program is administered by the Department of Unemployment Assistance.
Massachusetts Unemployment Insurance is an employer obligation. Payments are not deducted from an employee's wages. The Massachusetts Unemployment Insurance program is part of a nation-wide program administered by the US Department of Labor. Unemployment Insurance provides temporary payments to individuals who are unemployed through no fault of their own.
Unemployment Insurance is, like other insurance policies, a numbers game. Employer tax liability is based on a percentage of each employee's wages. When a new Massachusetts employer registers for Unemployment Insurance, the state has no numbers on which to base the percentage. First time Massachusetts employers are assigned an introductory rate based on the type of business and number of employees among other factors.
After the state has had enough time to compile insurance numbers on your business (total contributions vs. total paid to former employees over time) they will assign an "Experience Rate" to compute the percentage of wages to be paid going forward. The percentagde rate is commonly adjusted on an annual basis.
Department of Unemployment Assistance Contact Information
19 Staniford Street
Boston, MA 02114
Federal Unemployment Tax Act (FUTA) Tax
The Federal Unemployment Tax Act is a federal law that imposes an unemployment tax on employers. The FUTA tax funds the federal government's oversight of each state's unemployment program. Only employers pay FUTA tax; there is no requirement for withholding amounts from employee wages. Employers must deposit the tax quarterly and file an annual form.
FUTA Tax is used to fund the administrative costs of the Massachusetts Unemployment Insurance program while Unemployment Tax is used solely for the payment of benefits to unemployed Massachusetts workers.
The current FUTA tax rate is 6%. FUTA tax only applies to the first $7,000 you pay to each employee in a calendar year. You will stop paying FUTA taxes on an employee's wages once you pay the employee more than $7,000. Currently, the largest FUTA amount you will have to pay is $420 per employee ($7,000 x 0.06).
If you have FUTA tax liabilities, you need to make quarterly deposits and file IRS Form 940.
All employers must now deposit FUTA taxes by using electronic funds transfer (EFT). Usually, EFT payments are made using the Electronic Federal Tax Payment System (EFTPS). EFTPS is a free service offered by the U.S. Department of the Treasury that allows you to pay federal taxes online or over the phone. When you request a new EIN and indicate you will have federal tax payments, you are automatically pre-enrolled in EFTPS. The IRS will notify you about the pre-enrollment and how you can activate the account. If you are not pre-enrolled, you can sign up directly on the EFTPS website or by calling the EFTPS at 800-555-4477.
Workers' Compensation Insurance
The Massachusetts Workers' Compensation Insurance program is administered by the Department of Industrial Accidents. Massachusetts Workers' Compensation Insurance is an employer obligation. Payments are not deducted from an employee's wages.
Massachusetts employers are required by law to pay their employees if they are unable to work because of a work-related injury or illness. Most employers pay the premiums for a Workers' Compensation Insurance policy which has been approved by the Department of Industrial Accidents. Some employers opt to self-insure themselves if they are able to qualify with the Department of Industrial Accidents.
All Massachusetts employers may be required to have Workers' Compensation Insurance even if they have only one employee. While there are exceptions, almost all Massachusetts employees who are injured on the job are eligible for Workers' Compensation Insurance benefits.
Insurance rates vary depending on the type of business being conducted, the carrier's rate and the employer's annual payroll. On average the current cost of an approved Workers' Compensation Insurance policy in the state of Massachusetts is approximately $0.76 per $100 in payroll.
Department of Industrial Accidents Contact Information
1 Congress Street,
Boston, MA 02114-2017
Disability Insurance pays benefits to employees who are unable to work due to non-job-related accidents or illnesses. The state of Massachusetts does not require employers to provide Disability Insurance to employees. Massachusetts employers may provide Disability Insurance but are not required by law to do so.
New Hire Reporting
Both federal and state law requires all Massachusetts employers, both public and private, to report all contractors and newly hired employees to the state within 20 days of the hire date. Along with new employees, all Massachusetts employers are also required to report employees who are rehired after a separation of 60 days or more, including individuals who remain on the payroll during the separation. Generally if an employee is required to fill out IRS Form W-4, you must report that employee as a new hire.
State and county agencies use this information to assist in locating parents who are delinquent in their child support obligations.
Federal law requires employers to verify an employee's eligibility to work in the United States. Within three days of hire, employers must complete Form I-9, employment eligibility verification, which requires employers to examine documents to confirm the employee's citizenship or eligibility to work in the U.S. Employers can only request the documentation specified on the I-9 form.
Employers do not need to submit the I-9 form to the federal government but are required to keep them on file for three years after the date of hire or one year after the date of the employee's termination, whichever is later.
Both the federal and Massachusetts governments require employers to post certain specific information related to wages, hours and working conditions in a location used by employees where they can be easily read during normal work hours. The postings are commonly in a break or lunch room.
Posting requirements vary by type and size of business. All mandatory posters are available free from the federal government or from the state of Massachusetts.
Posters required by the federal government are available from the US Department of Labor
Provide a Wage and Tax Statement to Each Employee
Massachusetts employers must provide each employee with an IRS Form W-2, Wage and Tax Statement, each year. Form W-2 includes the total amount of the employee's wages withheld for the past year, as well as the amount of specific deduction categories. Form W-2 must be filed by January 31st each year for the previous tax year.
Massachusetts employers must also file IRS Form W-3, Transmittal of Wage and Tax Statements. Form W-3 contains a summary of the total employee withholding amounts which a Massachusetts employer withheld during the year. Form W-3 with all IRS Forms W-2 attached must be filed before the last day of February.