Having Full-Time or Part-Time Employees
As a business owner, when another person performs work for you, you must first correctly classify that person as an independent contractor or employee before you can know how to treat payments that you make to that person.
If you plan to hire one or more employees within Arizona, you will be subject to both federal and state requirements. Below are some resources to help connect you to the information you need. You may also wish to consult with your accountant or attorney for assistance.
- As an employer, you must withhold employment taxes from your employee’s wages. In addition, you need an Employer Identification Number (EIN). (12)
Apply online: Employer Identification Number (EIN)
Download: Application for Employer Identification Number (SS-4)
Internal Revenue Service (IRS): Employer ID Numbers
Attn: EIN Operation, Cincinnati, OH 45999
Phone: 800.829.4933 (7am -10pm local time, Monday-Friday)
- You generally must withhold federal income tax from your employee's wages. To figure how much to withhold from each wage payment, use the employee’s W-4 form and the methods described in the IRS Publication 15, (Circular E), Employer's Tax Guide and Publication 15-A Employer's Supplemental Tax Guide. (12)
Download: Form W-4, Employee’s Withholding Allowance Certificate
- Social security and Medicare taxes pay for benefits that workers and families receive under the Federal Insurance Contributions Act (FICA). Social security tax pays for benefits under the old-age, survivors, and disability insurance part of FICA. Medicare tax pays for benefits under the hospital insurance part of FICA. You withhold part of these taxes from your employee’s wages and you pay a matching amount yourself. All employees must have a social security card.
As an employer, it is now your responsibility to report payroll information annually to the Social Security Administration and to your employees. Visit Social Security Administration (SSA) Business Services Online information for large and small business/tax filers.
Social Security Administration: Employer W-2 Filing Instructions & Information
Social Security Administration: Electronic Fact Sheet: If You Are Self-Employed
Note: Self-employment tax applies to self-employed workers and is their contribution to social security. It is generally paid by sole proprietors, self-employed farmers and members of a partnership. Explanatory publications are available online at the Internal Revenue Service - Small Business and Self-Employed Tax Center.
- The federal unemployment tax is part of the federal and state program under the Federal Unemployment Tax Act (FUTA) that pays unemployment compensation to workers who lose their jobs. You report and pay FUTA tax separately from social security and Medicare taxes and withheld income tax. You pay FUTA tax only from your own funds. Employees do not pay this tax or have it withheld from their pay. FUTA taxes are reported on Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return to IRS.
Internal Revenue Service - Employment Tax Forms
Download: Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return
- All U.S. employers must verify the identity and employment authorization of each individual they hire for employment in the United States through completion of Form I-9, Employment Eligibility Verification. The Handbook for Employers M-274 provides guidance for completing Form I-9 (Employment Eligibility Verification Form). (18)
Contact: U.S. Citizenship and Immigration Services (USCIS), Form I-9 Contact Center, I-9 Central, 888.464.4218
- Employers paying wages to employees for services performed in the state must register to remit withholding tax. The Arizona Joint Tax Application is used to register for your employer withholding/unemployment insurance license. The application is called "Joint" because it is used by both the Departments of Revenue and Economic Security.
Register Online: Businesses > Enroll to File and Pay Online (for Employer Withholding and Unemployment Insurance License)
Download Form: Joint Tax Application for a TPT License (JT-1)
Arizona Department of Revenue: Arizona Withholding Tax
602.255.3381 or toll-free 800.843.7196 (from area codes 520 and 928)
Arizona Department of Economic Security - Questions Regarding Unemployment Tax
Arizona Department of Economic Security (DES): Unemployment - Employer
Unemployment Insurance Tax (UIT) - Frequently Asked Questions
- Under Arizona law, it is mandatory for employers to secure workers’ compensation insurance for their employees. Workers’ compensation is a “no fault” system in which an injured employee is entitled to receive benefits for an industrial injury, no matter who caused the job-related accident. Employers are required to bear the entire cost of workers' compensation insurance.
Companies may choose to insure their employees by insuring with an authorized carrier of the state, or by qualifying as a self-insurer under the rules and regulations of the Industrial Commission of Arizona. (17)
The Arizona Department of Insurance and Financial Institutions (DIFI) can verify if a company is licensed and authorized to sell workers’ compensation insurance in the State of Arizona.
Contact: Arizona Department of Insurance and Financial Institutions (DIFI), Consumer Affairs Division, 602.364.2499 or 800.325.2548
The Industrial Commission of Arizona administers the Workers' Compensation Law. (17)
Industrial Commission of Arizona, Claims Division: What Is Workers' Compensation and How Does It Work?
Phoenix area 602.542.4661 or Tucson area 520.628.5181
- On October 1, 1998, the Arizona New Hire Reporting Program from the Arizona Department of Economic Security, Division of Child Support Enforcement was established. State and federal law requires all employers to report each new and rehired employee to the State Directory of New Hires within 20 days of their hire date.
Contact: Arizona New Hire Reporting Center, 888.282.2064
- Arizona law requires employers in Arizona to use the “E-Verify” system (a free Web-based service offered by the federal Department of Homeland Security) to verify the employment authorization of all new employees hired after December 31, 2007.
E-Verify: Enroll in the Program
The Arizona Attorney General's Office web site provides basic information about the Legal Arizona Workers Act, sometimes called the “Employer Sanctions Law,” as amended.
Industrial Commission of Arizona, Arizona Division of Occupational Safety and Health (ADOSH)
OSHA’s “Safety Pays” Program Provides Planning Tool for Businesses: Interactive tool to help employers approximate the costs of occupational injuries and illnesses and the estimated impact on a company’s profitability.
U.S. Department of Labor, Occupational Safety and Health Administration, Help for Employers: How to comply, go beyond compliance, and improve your bottom line
IRS Tax Information for Businesses: If you decide to hire full-time or part-time employees, visit the IRS website for tax information for businesses.
Internal Revenue Service - Tax Information for Retirement Plans Community: Forms, publications and information on how to start, maintain and administer a retirement plan.