How to run payroll yourself for a US small business

Before the first paycheck

Running payroll yourself is mostly a matter of getting set up correctly once, then repeating the same steps every pay day. Before you pay anyone:

1. Get an EIN (Employer Identification Number) from the IRS. It is free and the online application gives you the number immediately.
2. Register with your state. Most states need two accounts: one for state income tax withholding (if the state has an income tax) and one for state unemployment insurance (SUTA). The unemployment agency assigns your SUTA rate and tells you the state's taxable wage base.
3. Enroll in EFTPS or set up another IRS electronic payment method. All federal tax deposits must be made electronically.
4. Collect forms from each new hire: a signed Form W-4, a state withholding form if your state has its own, and Form I-9 for employment eligibility.
5. Report the new hire to your state's new hire directory. Federal law allows up to 20 days from the hire date; some states want it sooner.

If a new employee never hands in a W-4, Pub 15 tells you to withhold as if they checked Single or Married filing separately and left Steps 2 to 4 blank.

Gross to net, with an example

Every paycheck follows the same order: start with gross pay, take out pre-tax deductions such as a 401(k), work out the taxes, then take out any after-tax deductions.

• Federal income tax comes from the employee's W-4 and the tables in IRS Publication 15-T. Payroll software uses the percentage method: annualise the pay, apply the annual rate schedule, then divide back to the pay period.
• Social Security is 6.2% of wages up to the 2026 wage base of $184,500.
• Medicare is 1.45% of all wages, plus 0.9% Additional Medicare on wages over $200,000 in the year.
• State and local income tax follow your state's own tables.

Here is a single employee paid $2,000 every two weeks (26 pay periods), 2026 W-4 with Single checked and nothing in Steps 2 to 4:

State income tax would come off next. You can check figures like these with our free 2026 paycheck calculator.

What the employer pays

On top of wages, the business owes its own share of payroll taxes. These are a business expense; none of it comes out of the employee's pay.

FUTA and SUTA stop once an employee's wages pass the wage base, so they are heaviest early in the year. In states with outstanding federal unemployment loans, the FUTA credit is reduced; see what changed in payroll for 2026.

In the books, the employee's withholdings and the employer's share sit in payroll liability accounts until you deposit them. Treat that money as already spent.

Depositing the taxes

Federal income tax withheld plus both halves of Social Security and Medicare are deposited together. Your schedule depends on the lookback period: for 2026 it is July 1, 2024 to June 30, 2025.

• $50,000 or less of taxes in the lookback period (and every new employer): monthly depositor. Deposit each month's taxes by the 15th of the following month.
• More than $50,000: semiweekly depositor. Taxes for paydays on Wednesday, Thursday or Friday are due the following Wednesday; for Saturday to Tuesday paydays, the following Friday.
• $100,000 or more accumulated on any day: deposit by the next business day, whatever your schedule.
• Small employers: if your total for the current or prior quarter is less than $2,500, and you did not trigger the $100,000 rule, you may pay with a timely filed Form 941 instead of depositing.
• FUTA is deposited quarterly, but only once the amount owed is over $500; smaller amounts roll forward to the next quarter.

State withholding and SUTA have their own schedules, set by each state.

Quarterly and year-end filings

If you deposited all of a quarter's taxes in full and on time, Form 941 can be filed by the 10th of the second month after the quarter. Before filing, check that the 941 totals agree with your payroll liability accounts and with what you deposited. At year-end, the four 941s should add up to the W-3. The dates and the new 2026 W-2 boxes are in W-2 and 1099 deadlines for 2026.

Payroll software works out the numbers, but you still make the deposits and file the returns. Put the dates in your calendar on the day you hire. For anything unusual, such as tips, multi-state employees or fringe benefits, an hour with an accountant is well spent.