What payroll tax accounts should new businesses register for?

Payroll Tax Accounts New Businesses Must Register for in Connecticut

When starting a business in Connecticut, registering for the correct payroll tax accounts is essential for compliance and smooth operations. As of 2026, new employers must establish accounts to manage state and federal payroll tax obligations.

Essential Payroll Tax Accounts

• Connecticut Department of Revenue Services (DRS) Withholding Account: Register to withhold state income tax from employee wages. This account is necessary for remitting Connecticut state income taxes withheld from employees.
• Connecticut Unemployment Insurance (UI) Account: New employers must register with the Connecticut Department of Labor to pay state unemployment insurance taxes. This supports unemployment benefits for eligible workers.
• Federal Employer Identification Number (EIN): Obtain an EIN from the IRS to report federal payroll taxes, including Social Security, Medicare, and federal income tax withholding.
• Federal Unemployment Tax Act (FUTA): While the IRS does not require a separate registration for FUTA, employers must file and pay FUTA taxes using their EIN.

Operational Steps for Registration

• Apply for an EIN: This is the first step and is done through the IRS website. The EIN is required to open payroll tax accounts and report federal taxes.
• Register with Connecticut DRS: Use the Connecticut Taxpayer Service Center to create a withholding tax account.
• Register with Connecticut Department of Labor: Set up an unemployment insurance account online to report and pay UI taxes.
• Set Up Payroll Systems: Integrate withholding, unemployment, and federal payroll tax calculations into your payroll software or service to ensure timely and accurate tax payments and filings.

Additional Considerations

• Employee Classification: Correctly classify workers as employees or independent contractors to determine payroll tax responsibilities.
• Reporting Requirements: Stay up to date on quarterly and annual payroll tax filings to avoid penalties.
• Recordkeeping: Maintain detailed payroll records for at least four years per Connecticut and federal guidelines.
• Automation: Consider payroll automation tools to streamline tax withholding, payments, and reporting compliance.