How to Run Payroll Yourself: A Step-by-Step Guide (2026)

Running payroll yourself is less about math than about deadlines. The paycheck calculation takes minutes once you know the rates. What trips up first-time employers is everything around it: the accounts to open before the first payday, the forms each new hire signs, the date each tax deposit is due, and the year-end filings.

This guide walks through how to hire your first employee and run payroll yourself, in order, with a worked paycheck using 2026 federal rates. Federal figures are for tax year 2026 and were checked against IRS, USCIS, E-Verify, federal new-hire program and Department of Labor sources on October 6, 2026. State rules vary, so we point out where to check yours.

This is general information, not tax or legal advice. If your situation is unusual, talk to a CPA or enrolled agent.

Before the first hire: set up your accounts

Get an EIN. An employer identification number (EIN) is your business’s federal tax ID, and the IRS says you generally need one to hire employees. If your business is in the U.S. and you have the responsible party’s SSN or ITIN, you can apply online directly with the IRS and get the number in one session. If you form an LLC or corporation, register it with your state first.
Register with your state. You will usually need a state unemployment insurance (SUI) account, and a state income tax withholding account if your state taxes wages. If your city or county has its own payroll tax, register there too. Your state labor and revenue departments list what you need.
Set up electronic tax payments. All federal tax deposits must be made by electronic funds transfer. You can use EFTPS (the Treasury’s free Electronic Federal Tax Payment System), IRS Direct Pay or your IRS business tax account.
Check workers’ compensation. Workers’ compensation insurance rules are set by each state. Check yours before the employee starts.
Confirm the person is an employee. If you control how and when the work is done, the worker is probably an employee, not a contractor. See our guide to 1099 vs W-2.

When you hire: the new-employee paperwork

Form W-4 (Employee’s Withholding Certificate). The employee fills in filing status and any adjustments. You use it to figure federal income tax withholding. Ask each new employee for the 2026 Form W-4. Your state may have its own withholding form as well.
Form I-9 (Employment Eligibility Verification). The employee completes Section 1 no later than their first day of work for pay. You review their identity and work authorization documents and complete Section 2 within 3 business days of that first day. Keep it in your own files.
E-Verify, where required. E-Verify is an online check of I-9 information. It is voluntary for most employers, but federal contracts with the E-Verify clause require it, and some states require it, for example as a condition of a business license.
New hire report. Federal law requires you to report each new or rehired employee to your state’s new hire registry within 20 days of hire. Some states set a shorter deadline. The report includes the employee’s name, address, SSN and hire date, plus your business name, address and EIN. Many states accept a copy of the W-4 with employer details added.

Choose a pay schedule and track hours

Pick a pay frequency (weekly, biweekly, semimonthly or monthly) and stick to it. Check whether your state sets rules on how often you must pay.

For hourly, non-exempt employees, track every hour worked. Under the federal Fair Labor Standards Act, covered employees must be paid at least $7.25 an hour and at least one and a half times their regular rate for hours over 40 in a workweek. If your state or city sets a higher minimum wage, you pay the higher rate.

How to calculate a paycheck: gross to net

Each payday has the same five steps:

Gross pay. Hours × rate (plus overtime), or the salary divided by pay periods.
Pre-tax deductions, such as some retirement or health plan contributions, if you offer them.
Employee taxes: federal income tax withholding, Social Security, Medicare, and any state and local taxes.
Post-tax deductions, such as wage garnishments, if any.
Net pay: what is left, paid by check or direct deposit.

2026 federal payroll tax rates

Tax	Employee pays	Employer pays	Wage limit (2026)
Social Security	6.2%	6.2%	First $184,500 per employee
Medicare	1.45%	1.45%	No limit
Additional Medicare Tax	0.9% on wages over $200,000	None	Starts once wages pass $200,000 in the year
Federal unemployment (FUTA)	None	6.0%, usually 0.6% after state credit	First $7,000 per employee
Federal income tax	Per Form W-4 and Pub. 15-T	None	No limit

The FUTA rate drops to 0.6% when you get the full 5.4% credit for paying state unemployment taxes in full and on time, unless your state is a credit reduction state.

Worked example: one biweekly paycheck in 2026

The employee: paid $2,000 every two weeks (26 paydays a year). Their 2026 Form W-4 shows Single, with nothing in Steps 2, 3 or 4. No pre-tax deductions.

Federal income tax withholding, using the 2026 Publication 15-T percentage method (Worksheet 1A) for automated payroll systems:

Annualize the wages: $2,000 × 26 = $52,000.
Subtract $8,600, the amount the worksheet uses when the Step 2 box is not checked and the filer is not married filing jointly: $52,000 − $8,600 = $43,400 (adjusted annual wage).
In the 2026 standard Single table, $43,400 falls in the $19,900 to $57,900 bracket: $1,240.00 plus 12% of the amount over $19,900.
$43,400 − $19,900 = $23,500. $23,500 × 12% = $2,820.00. $1,240.00 + $2,820.00 = $4,060.00 a year.
Divide by 26 paydays: $4,060.00 ÷ 26 = $156.15 per paycheck.

The paycheck:

Line	Calculation	Amount
Gross pay		$2,000.00
Federal income tax	Pub. 15-T, as above	−$156.15
Social Security	6.2% × $2,000	−$124.00
Medicare	1.45% × $2,000	−$29.00
Net pay before state and local tax		$1,690.85

State and local income tax, where your state or city has one, would come out next, using that government’s tables.

What it costs you as the employer, on top of the $2,000:

Line	Calculation	Amount
Employer Social Security	6.2% × $2,000	$124.00
Employer Medicare	1.45% × $2,000	$29.00
FUTA (with full state credit)	0.6% × $2,000	$12.00
State unemployment	Your state rate × taxable wages	Varies

FUTA stops once the employee’s year-to-date wages pass $7,000. Here that happens on the fourth paycheck, so this employee’s FUTA for the year is $42 (0.6% × $7,000).

For this payday you owe the IRS $462.15: the $156.15 withheld for income tax, plus $153.00 of Social Security and Medicare withheld from the employee, plus your matching $153.00. FUTA is deposited separately (see below).

Different W-4 entries, pay frequencies or pre-tax deductions change the withholding. Use the current Pub. 15-T tables for each paycheck, or software that applies them for you.

Deposit payroll taxes on time

The income tax you withhold, plus both halves of Social Security and Medicare, must be deposited electronically on a set schedule.

Monthly schedule. New employers are monthly depositors for their first calendar year. Deposit the taxes for wages paid in a month by the 15th of the following month.
Semiweekly schedule. From the next year, your schedule depends on a lookback period. If you reported more than $50,000 of these taxes in the lookback period, you become a semiweekly depositor: wages paid Wednesday to Friday are due the following Wednesday, and wages paid Saturday to Tuesday are due the following Friday.
$100,000 next-day rule. If you accumulate $100,000 or more of tax on any day, deposit it by the next business day, whatever your schedule.
Small-quarter exception. If your total tax for the current or prior quarter is less than $2,500, you can pay with the return instead of depositing, as long as you did not trigger the $100,000 rule. If you are not sure you will stay under $2,500, deposit on schedule.

Late deposits cost money. The IRS penalty is 2% for deposits 1 to 5 days late, 5% for 6 to 15 days, 10% for 16 days or more, and 15% if still unpaid more than 10 days after the first IRS notice. Withheld taxes are held in trust for the government: if they are not paid, the IRS can charge a trust fund recovery penalty of 100% of the unpaid amount personally to the people responsible for paying them who willfully failed to do so.

File the returns

Form	What it reports	When it is due
Form 941 (quarterly)	Wages paid, income tax withheld, Social Security and Medicare	April 30, July 31, October 31 and January 31. If you deposited all tax on time, you can file by the 10th of the next month (for example, May 10 instead of April 30).
Form 940 (annual)	FUTA tax	January 31 of the next year, or February 10 if you deposited all FUTA tax when due. FUTA is deposited quarterly once the undeposited amount exceeds $500.
Form W-2 and W-3 (annual)	Each employee’s wages and withholding	Give employees their W-2 and file Copy A with the Social Security Administration by January 31 of the next year.
State returns	State withholding and unemployment	Set by each state, often quarterly.

When a due date falls on a weekend or legal holiday, it moves to the next business day. For 2025 forms, for example, the IRS set the W-2 deadline as February 2, 2026.

Notes on these forms:

Form 944 instead of 941. If you expect your employment taxes for the year to be $1,000 or less, you can ask the IRS to let you file Form 944 once a year. You must have the IRS’s written notice before you switch.
Who owes FUTA. You owe FUTA on regular employees if you paid wages of $1,500 or more in any calendar quarter, or had an employee for some part of a day in 20 or more different weeks, in the current or previous year.
E-filing. If you file 10 or more information returns in a year, counting Forms W-2 and 1099 together, you must file them electronically.
Reconcile. The totals on your four Forms 941 should match your Forms W-2 and W-3. Mismatches lead to IRS or SSA letters.

Keep payroll records

The IRS says to keep all employment tax records for at least 4 years. That includes your EIN, the amounts and dates of all wage payments, each employee’s name, address, SSN and occupation, dates of employment, copies of returns filed, and deposit records. Keep Forms I-9 for as long as USCIS rules require, and check your state’s own recordkeeping rules.

Common mistakes

Treating an employee as a contractor to skip payroll. The IRS and DOL tests look at control and economic reality, not at what the agreement says. See 1099 vs W-2.
Missing the first deposit. Monthly depositors owe by the 15th of the next month. Do not wait for the quarterly Form 941.
Using last year’s tables. Withholding tables and the Social Security wage base change every year. For 2026 the wage base is $184,500.
Forgetting the employer half. Your cost is gross pay plus 7.65% for Social Security and Medicare, plus FUTA and state unemployment.
Skipping the new hire report or I-9. Both have short deadlines from the first day of work.
Mixing payroll money with operating cash. Withheld tax is not yours. Set it aside each payday so the deposit is there when due.

When DIY makes sense, and when software is worth it

Doing it yourself can work if you have one or two salaried or steady hourly employees in a single state, no tips or commissions, and the discipline to calendar every deposit and filing date. Your costs are your time and the risk of a missed date.

Payroll software is usually worth it when you have hourly staff with changing hours, employees in more than one state, benefits deductions, tips, or simply no time to track deadlines. Full-service payroll providers calculate withholding, make the deposits, and file Forms 941, 940 and W-2 and the state returns for you. Check exactly which filings each plan covers before you buy.

Compare options here:

Best Payroll Software for Small Business (2026)
Best HR and Payroll Software for Small Business
Best Payroll Software for 1 Employee, if you are a solo owner paying yourself or your first hire.
In construction? Read What Is Certified Payroll? and Best Construction Payroll Software.

Frequently asked questions

Can I do payroll myself?

Yes. Nothing in federal law requires a payroll service. You need an EIN, state payroll accounts, the right new-hire forms, and a routine for calculating paychecks, depositing taxes on time and filing Forms 941, 940 and W-2. It is most manageable with one or a few employees in a single state.

What are the 2026 payroll tax rates?

For 2026, Social Security tax is 6.2% for the employee and 6.2% for the employer on wages up to $184,500. Medicare is 1.45% each, with no wage cap, plus 0.9% Additional Medicare Tax withheld from an employee's wages over $200,000. Federal unemployment (FUTA) tax is 6.0% on the first $7,000 per employee, usually 0.6% after the state credit. Federal income tax withholding comes from IRS Publication 15-T.

When do I deposit payroll taxes?

New employers are monthly schedule depositors for their first calendar year: taxes withheld and owed for wages paid in a month are due by the 15th of the next month. Later, if your taxes in the lookback period exceed $50,000, you switch to the semiweekly schedule. Any day you accumulate $100,000 or more, the deposit is due the next business day. All deposits must be made electronically.

What do I need before hiring my first employee?

An EIN from the IRS, state withholding and unemployment insurance accounts (rules vary by state), and a pay schedule. On or before the first day, the employee completes Form W-4 and Section 1 of Form I-9; you complete Section 2 of the I-9 within 3 business days and report the hire to your state's new hire registry, generally within 20 days.

Sources and updates

Facts in this article were last checked against the official sources below on Oct 6, 2026. Rules and thresholds change, so confirm anything you act on with the official source or a qualified professional. Spot something out of date? Tell us and we will re-check it. How we work: editorial policy.