Payroll taxes are broken down into two parts: Federal and State. The Federal payroll process is the same regardless of the state your business resides in. The State payroll process, on the other hand, is similar from one state to the next, but does vary in some ways. This step by step guide will focus mainly on the Federal payroll process and be general with regards to the State payroll process. Because I live in Florida and I am very familiar with the Florida payroll process you will find much more detailed information. So if you live in Florida LUCKY YOU! If you don't live in Florida don't worry. I will begin to build a database of relevant links where you can learn the payroll process for your specific state. Do keep in mind that this will take some time to build a database for all 50 states.

The steps below assume that you are starting a new business. If you pay someone to process your payroll most of these steps have been completed already. There is no need to do them again.

The first thing you want to do once you determined that you need to process payroll is to obtain a Federal Employment Identification Number (FEIN). This can be done easily through the IRS website by clicking here. Just follow the steps and provide all the necessary information. The most important step is that you choose to receive the FEIN Letter online. This option will allow you to print your FEIN immediately after completing the application rather than wait for the letter to be mailed, which takes several weeks.

The next step is to sign up for the Electronic Federal Tax Payment System (EFTPS). The EFTPS is a free service provided by the federal government, which allows you to pay your Federal taxes electronically using your business or personal checking account. Once you apply online, you will receive a four (4) digit pin in the mail. Use that pin to activate your EFTPS account.

Finally, you will want to purchase a Payroll Software. This step is NOT REQUIRED, but I recommend you do. Part of the payroll process every pay period is to calculate how much tax to withhold from your employees. This includes Income Tax Withholding, Social Security and Medicare tax, as well as state taxes. This can be calculated manually, but this will only make the process much more tedious and time consuming. Depending on how many employees you have this will be the best investment you make. The software I currently use is Checkmark's Payroll Software. It is currently selling for $249 to purchase the software and the yearly updates thereafter are only $125. There are many other options. I recommend you do a little research and choose the one that fits your business the best. I've heard many great reviews with Intuit's Payroll software. It is compatible with QuickBooks and very user friendly.