You’ve established a business as a sole proprietor in Vermont. Even better – you’re growing and need to hire your first employee. Below are the steps you need to take to comply with Federal and State laws.
A few things upfront. First, if you’re not registered as a corporation or LLC, we strongly recommend you consider changing your registration. Next, employers with more than ten employees have specific record-keeping requirements. If you are hiring a slew of employees at once (yay Vermont jobs!) check out the OSHA site.
1. Federal requirements – What you must do for yourself as an employer
a. Obtain a Federal Employer Identification Number (EIN). The EIN gives your business a unique identifier instead of your social security number. You can apply for an EIN here.
b. Enroll in the Electronic Federal Tax Payment System (EFTPS) to make Federal tax payments (social security, Medicare, Federal withholding). Alternately, you can contact your bank to enroll in your bank’s service to make tax payments under the Electronics Federal Tax Payment system.
c. Complete and file Form 941 – Employer’s Quarterly Tax Return. This determines amounts you must deposit for social security, Medicare, and Federal withholding taxes. It also determines if you deposit on a semi-weekly or monthly basis.
Note: Form 944 is designed so the smallest employers (those whose annual liability for social security, Medicare, and withheld federal income taxes is $1,000 or less) will file and pay these taxes only once a year instead of every quarter.
d. Complete and file an Employers Annual Federal Unemployment Tax (FUTA) return. The FUTA tax provides funds for paying unemployment compensation to workers who have lost their jobs, and cannot be deducted from employees’ wages.
e. Complete and file Form W-2 Wage and Tax Statement and Form W-3 Transmittal of Wage and Tax Statement. This can be done electronically.
Additional information is available at Publication 15 (Circular E) which defines employees, wages and supplemental wages. Also Publication 15-A provides supplemental information, and Publication 15-B provides a guide to taxability and non-taxability of fringe benefits.
2. Federal requirements – What you must do for employees
a. Your employee must complete Form I-9 for Employee Eligibility Verification.
b. Your employee must fill out Form W-4 for income tax withholding.
c. Hold onto these forms for your records.
3. State requirements – Department of Taxes
There are two different accounts to set up with the Vermont Department of Taxes:
a. Set up a Business Tax Account on the SoS Online Business Portal. This will register your business to withhold tax on employee paychecks. You may already have an account if you collect sales & use or meals & room taxes.
b. Set up a myVTax account, which allows you to make online filings for all state taxes.
c. Calculate State withholding tax. Complete and file Form WHT-436 Quarterly Withholding Reconciliation or Form WHT-434 Annual Withholding Reconciliation on the appropriate due dates.
Note: All businesses should file Form WHT-436 with the State quarterly. Payment frequency to the State will mirror your Federal payment frequency; for example, if you are required to pay your Federal Withholding Tax semiweekly, you are required to pay the Vermont Withholding Tax semiweekly.
4. State requirements – Department of Labor
a. Register with the Department of Labor to determine if you are liable for unemployment insurance contributions.
- If so, register with the Vermont Internet Tax and Wage System to make Quarterly Wage and Contribution Reports.
b. Establish and maintain a worker’s compensation policy
- You will need to get a worker’s compensation policy through a private insurer. Your insurer will notify the National Council on Compensation Insurance (NCCI), which will include you on an online database the State can refer to if complaints are received about your business.
- If your business is structured as a corporation or an LLC, you may elect to exclude up to four corporate officers or LLC members. In order to do so, you must file a Form 29 with the Vermont Department of Labor.
c. Print out and post the mandatory posters from the Department of Labor website — and familiarize yourself with each one.
d. Within 10 days of the employee starting work, fill out a New Hire Report.
5. Paying your first paycheck
a. Calculate the employee’s wage due.
b. Calculate Federal and State taxes to deduct from wage due. Refer to:
- Federal Tax Form 941 (step 1c)
- W-4 filled out by your employee (step 2b)
- Vermont Department of Taxes Withholding Instructions
c. Deduct taxes from wages due.
d. Sign and issue the paycheck.
6. Mark your calendar
Bi-Weekly
- Deposit social security, Medicaid and Federal withholding taxes via EPTPS.
- Pay State withholding taxes, if applicable.
Monthly
- Vermont Department of Taxes returns must be postmarked or filed by the 25th of the reporting period (except by the 23rd in February).
- Vermont Department of Labor Unemployment Insurance payments are due at the end of the month following the reporting period.
Quarterly
- Federal Tax Form 941 – Employer’s Quarterly Federal Tax Return
- State Tax Form WHT-436 – Quarterly Withholding Reconciliation
- State DoL Quarterly Wage and Contribution Report
Annually
All returns are due by January 31st, including:
- Federal FUTA returns
- 1099-miscellaneous returns for payments over $600 to individuals (NOT employees)
- Federal Form W-3 and Federal Form W-2, with a copy of the W-2 to each employee
- State Form WHT-434 Annual Withholding Reconciliation
Businesses are encouraged to speak with an accountant and/or attorney to assure compliance. These folks can also help with best practices and policies for: the hiring process, personnel issues, recordkeeping and insurance.
Questions on the information above can be referred to:
- Secretary of State | Corporations Division | 802-828-2386 | sos.corporations.support@sec.state.vt.us
- Department of Taxes | Business Division | 802-828-2551 | tax.business@vermont.gov
- Department of Labor | Employer Services | 802-828-4344 | labor.uiandwages@vermont.gov