Hiring Employees

EIN for Hiring Employees: Payroll Tax Requirements (2026)

You must have an EIN before hiring your first employee. Learn about Form 941, W-2 requirements, state payroll registration, and how to set up payroll correctly.

The IRS requires every employer to have an EIN before paying wages to any employee. Your EIN is used on Form 941 (quarterly payroll tax return), Form W-2 (annual wage statement), federal and state payroll tax deposits, and new hire reporting forms. Hiring without an EIN means you cannot legally withhold or deposit payroll taxes, which exposes you to IRS penalties ranging from 2% to 15% of unpaid taxes.

Hiring your first employee is a major milestone for any business. It means your business is growing and you need help to keep up with demand. But the IRS has strict requirements for employers that kick in the moment you issue your first paycheck. Your EIN is the foundation of employer tax compliance.

This guide covers everything employers need to know about EINs: why you must have one before hiring, what payroll taxes you owe, which forms you file, how to set up payroll, and the penalties for non-compliance. Whether you are hiring your first employee or your hundredth, your EIN is on every payroll tax document. For general information, see Who needs an EIN?

Legal Requirements

Why Is an EIN Required Before Hiring Employees?

Employers are responsible for 5 separate payroll tax obligations from the first paycheck. The combined employer cost is 7.65% of wages (6.2% Social Security + 1.45% Medicare) plus 0.6% FUTA on the first $7,000 per employee. When you hire an employee, you become responsible for withholding federal income tax, Social Security tax, and Medicare tax from their paycheck.

Employer Payroll Tax Obligations at a Glance

Your EIN is the identifier the IRS uses to track your payroll tax deposits and filings. Without an EIN, you cannot create an account in the Electronic Federal Tax Payment System (EFTPS), which is how employers deposit payroll taxes. You cannot file Form 941 (quarterly payroll tax return) or issue W-2 forms to employees at year end.

The IRS is explicit about this requirement: you must have an EIN before paying your first employee. This is not optional, and there is no grace period. If you hire someone and pay them without an EIN, you are immediately out of compliance with federal tax law. Penalties begin accruing from the first missed deposit.

Beyond federal requirements, every state has its own employer registration process that requires your federal EIN. You need to register for state income tax withholding, state unemployment insurance (SUI), and workers' compensation insurance. Your EIN is the starting point for all of these registrations.

Payroll Taxes

What Payroll Taxes Do Employers Pay Using Their EIN?

The total employer payroll burden is 7.65% to 19.65% of wages depending on state, split between 5 tax types. Your EIN identifies your business on all payroll tax deposits and filings. Here is the complete breakdown:

5 Payroll Tax Types Employers Must Pay

Social Security Tax (FICA)

6.2% employer + 6.2% employee

Both the employer and employee pay 6.2% on wages up to $168,600 (2026 limit). You withhold the employee portion from their paycheck and pay the employer portion yourself. Both amounts are deposited under your EIN.

Medicare Tax

1.45% employer + 1.45% employee

Both the employer and employee pay 1.45% on all wages with no cap. Employees earning over $200,000 pay an additional 0.9% Medicare surtax. You withhold the employee portions and pay the employer portion.

Federal Income Tax Withholding

Varies by employee W-4

You withhold federal income tax from employee paychecks based on their Form W-4 elections. The amount varies by income, filing status, and allowances. You deposit these withholdings with the IRS under your EIN.

Federal Unemployment Tax (FUTA)

6.0% on first $7,000 per employee

Employers pay FUTA tax on the first $7,000 of each employee's wages. Most employers receive a 5.4% credit for paying state unemployment taxes, reducing the effective FUTA rate to 0.6%. Filed annually on Form 940 using your EIN.

State Unemployment Tax (SUTA)

Varies by state (0.5%-12%)

Each state sets its own unemployment tax rate based on your industry and claims history. New employers pay a default rate. You register with each state where you have employees using your federal EIN.

Tax Forms

What Payroll Tax Forms Require Your EIN?

5 federal payroll tax forms require your EIN, with deadlines spanning all 4 quarters plus year-end. Missing a single Form 941 deadline triggers a 5% per month penalty. Here is the complete schedule:

Payroll Tax Forms and Deadlines

Form	Frequency	Deadline	Penalty for Late Filing
Form 941	Quarterly	Apr 30, Jul 31, Oct 31, Jan 31	5% per month up to 25%
Form W-2	Annual	January 31	$60 per form (up to $630,500)
Form W-3	Annual	January 31	Same as W-2 penalties
Form 940	Annual	January 31	5% per month up to 25%
Form 944	Annual (small employers)	January 31	5% per month up to 25%

Form 941 -- Quarterly Payroll Tax Return

Quarterly (April 30, July 31, Oct 31, Jan 31)

Reports total wages paid, federal income tax withheld, Social Security and Medicare taxes (both employer and employee portions), and any adjustments. This is the most frequently filed employer tax form.

Form W-2 -- Wage and Tax Statement

Annually (January 31)

Reports each employee's total wages and tax withholdings for the year. You send copies to employees, the Social Security Administration, and state tax agencies. Your EIN appears on every W-2.

Form W-3 -- Transmittal of Wage and Tax Statements

Annually (January 31)

A summary form that accompanies all W-2s sent to the Social Security Administration. It totals all wages and withholdings across all employees for the year.

Form 940 -- Annual Federal Unemployment Tax Return

Annually (January 31)

Reports your FUTA tax liability for the year. If your FUTA tax exceeds $500 in any quarter, you must deposit it quarterly. The annual return reconciles all deposits.

Form 944 -- Annual Payroll Tax Return

Annually (January 31)

Available for very small employers (annual payroll tax liability of $1,000 or less). Instead of filing Form 941 quarterly, you file one annual return. The IRS must approve you to use Form 944.

Payroll Setup

How Do You Set Up Payroll With Your EIN?

Setting up payroll correctly from the start prevents costly mistakes and IRS penalties. Here is the complete checklist for new employers:

Get Your EIN

If you do not have an EIN yet, apply immediately. US residents get one instantly online. Non-US residents use ein.so ($49 Standard, $97 Express). Do not hire anyone until you have your EIN in hand.

Learn more

Register with EFTPS

Create an account at eftps.gov (Electronic Federal Tax Payment System). This is how you deposit federal payroll taxes. Registration requires your EIN and takes about a week to receive your PIN by mail.

Register with State Tax Agencies

Register for state income tax withholding and state unemployment insurance in every state where you have employees. Each state issues its own employer ID number. Your federal EIN is used during registration.

Choose a Payroll System

Select a payroll service (Gusto, ADP, Paychex, QuickBooks Payroll) or handle payroll manually. Enter your EIN during setup. Modern payroll systems automate tax calculations, deposits, and filings.

Collect Employee Forms

Have each new employee complete Form W-4 (federal withholding elections), Form I-9 (employment eligibility verification), and any state withholding forms. Report new hires to your state's new hire registry within 20 days.

Run Your First Payroll

Calculate gross wages, withhold federal and state taxes, deduct employee benefits, and pay net wages. Deposit withheld taxes with the IRS via EFTPS on schedule (semi-weekly or monthly depending on your liability). File Form 941 at quarter end.

Compliance

What Are the Penalties for Payroll Tax Non-Compliance?

IRS payroll penalties range from 2% to 100% of unpaid taxes. The Trust Fund Recovery Penalty (TFRP) pierces your LLC's liability protection and holds you personally liable. In 2024, the IRS assessed $7.2 billion in payroll tax penalties. Failing to deposit or file on time triggers automatic penalties:

Payroll Tax Penalty Schedule

Violation	Penalty Rate	Example ($10,000 in taxes)
Deposit 1-5 days late	2%	$200
Deposit 6-15 days late	5%	$500
Deposit 16+ days late	10%	$1,000
10+ days after IRS notice	15%	$1,500
Trust Fund Recovery (TFRP)	100% (personal liability)	$10,000

Failure to Deposit

Penalties range from 2% (1-5 days late) to 10% (16+ days late) to 15% (not deposited within 10 days of IRS notice). These penalties are calculated on the amount of tax not deposited on time.

Failure to File Form 941

5% of the unpaid tax for each month the return is late, up to a maximum of 25%. If you file more than 60 days late, the minimum penalty is the lesser of $510 or 100% of the tax due.

Failure to Furnish W-2s

If you do not provide W-2 forms to employees by January 31, the penalty is $60 per form (up to $630,500). Intentional disregard of the requirement carries higher penalties with no cap.

Trust Fund Recovery Penalty (TFRP)

The IRS can assess the TFRP against any individual responsible for collecting, accounting for, or depositing payroll taxes who willfully fails to do so. This penalty equals 100% of the unpaid trust fund taxes and is assessed personally -- not against the business.

The Trust Fund Recovery Penalty is particularly dangerous because it bypasses your LLC's liability protection. The IRS can come after you personally for unpaid payroll taxes. This is why getting your EIN and setting up payroll correctly from day one is so important. For LLC-specific guidance, see our EIN for LLC guide. For the EIN application process, see How to get an EIN.

Classification

How Does Your EIN Work Differently for Employees vs. Contractors?

The IRS assessed $3.4 billion in worker misclassification penalties in 2024. Your EIN appears on tax forms for both employees and independent contractors, but the obligations are very different. Misclassifying an employee as a contractor triggers penalties of 1.5% of wages plus 20% of withheld employee FICA taxes.

Employees vs Contractors: Tax Obligation Comparison

Obligation	Employees (W-2)	Contractors (1099)
Tax withholding	Required (income, SS, Medicare)	Not required
Employer taxes	SS, Medicare, FUTA, SUTA	None
Year-end form	Form W-2	Form 1099-NEC
Quarterly filing	Form 941	None
EIN required	Mandatory	Recommended (SSN alternative)

If you hire both employees and contractors, you need your EIN for both but handle them differently in your tax system. Employees go through payroll with full withholding; contractors receive gross payments and handle their own taxes. Your EIN appears on W-2s for employees and 1099-NECs for contractors who receive $600 or more.

Frequently Asked Questions

Do I need an EIN before hiring my first employee?

Yes. The IRS requires every employer to have an EIN before paying wages. You need your EIN to set up federal payroll tax accounts, file Form 941 (quarterly payroll tax return), issue W-2s at year end, and register with your state's tax and labor agencies. You cannot legally hire an employee without an EIN.

Can I hire independent contractors without an EIN?

Technically, you can hire independent contractors using your SSN on 1099-NEC forms. However, using an EIN is strongly recommended because it protects your SSN from appearing on contractor tax forms. If you pay any contractor more than $600 in a year, you must issue a 1099-NEC with your TIN.

What is Form 941 and why does it need my EIN?

Form 941 is the Employer's Quarterly Federal Tax Return. You file it every quarter to report income taxes, Social Security tax, and Medicare tax withheld from employee paychecks. Your EIN identifies your business on this form. Failure to file Form 941 results in IRS penalties.

How do I set up payroll with my EIN?

After getting your EIN, register with your state's tax agency for state withholding and unemployment insurance. Then choose a payroll system (Gusto, ADP, QuickBooks Payroll, etc.), enter your EIN during setup, add employee information including their W-4 forms, and run your first payroll. Most payroll systems handle tax filings automatically.

Do I need a separate EIN for each state I hire in?

No. Your federal EIN works nationwide. However, you need to register separately with each state where you have employees. Each state issues its own employer identification numbers for state tax withholding and unemployment insurance. Your federal EIN is used on federal forms; state IDs are used on state forms.

What payroll taxes do employers pay?

Employers pay the employer portion of Social Security (6.2%) and Medicare (1.45%) taxes, federal unemployment tax (FUTA, 6% on first $7,000 per employee), and state unemployment tax (SUTA, rates vary by state). You also withhold the employee portion of Social Security, Medicare, and federal/state income taxes from their paychecks. Your EIN is on all payroll tax filings.

How long does it take to get an EIN for hiring?

US residents with an SSN can get an EIN instantly online at IRS.gov. Non-US residents must apply by fax, which takes 4-7 business days. ein.so's Express service ($97) delivers your EIN in 7 business days. Get your EIN before posting job listings so you are ready to onboard employees immediately.

What happens if I hire employees without an EIN?

Hiring employees without an EIN means you cannot file payroll taxes, which triggers IRS penalties. Failure-to-deposit penalties range from 2% to 15% of the unpaid tax. You also cannot issue W-2s, which creates problems for your employees. The IRS can assess trust fund recovery penalties against responsible individuals personally.

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