Open a business in any state, step by step

Payroll taxes and forms

What a W-2 employer files with the IRS, in the order you'll need it. Form links open the official PDF from IRS.gov, where you can save or print it. They always point to the current version, which matters because many forms change every year.

Most small businesses hand all of this to a payroll service, which files the forms and makes the deposits for you. Knowing what each form is helps you check that it's actually getting done.

2026 payroll tax rates

Overtime: federal law requires 1.5x pay after 40 hours in a workweek. A few states also count by the day: California (over 8 hours, double time over 12, plus 7th-day rules), Alaska (over 8 hours), Colorado (over 12 hours), and Nevada (over 8 hours for workers earning under $18.00 an hour). Each state's checklist covers its rules.

Federal minimum wage is $7.25; where a state or local rate is higher, the higher rate applies. U.S. DOL: Minimum wage in every state

The payroll calendar

Form 941, explained

Form 941 is the quarterly report that tells the IRS how much you paid employees and how much federal tax you withheld and owe for that quarter. It's how the IRS matches your deposits to what you actually owed.

• What it reports: wages paid, federal income tax withheld, and Social Security and Medicare tax (both the employee's and your matching share), minus the deposits you already made
• Who files: every employer that pays wages, every quarter, even a quarter with no payroll, until you file a final return. The exception is employers the IRS has told in writing to file Form 944 annually instead.
• Due: April 30, July 31, October 31, and January 31. If you made all deposits on time, you get until the 10th of the following month.
• Schedule B: semiweekly depositors (and anyone who hits $100,000 in one day) attach it to show tax owed by payday
• Mistakes: fix them on Form 941-X; don't change the next quarter's 941 to compensate
• In practice: your payroll service files it. Download a copy each quarter and check that the total matches your payroll register.

Form library

Paper W-2 and 1099 copies filed with the government must be the official red-ink forms ordered from the IRS. Filing online through the SSA and IRIS skips that entirely. Deposits are made through EFTPS.

Retirement plans for small employers

Offering a plan helps you hire and keep people, gets you tax credits, and in a growing number of states is the way to avoid a state retirement mandate. Here's what the terms mean and how to choose, in plain English.

Roth vs. traditional

Employees choose, not you. A good plan offers both and lets each person split contributions however they like. Starting in 2026, employees age 50+ who earned over $150,000 in FICA wages the prior year must make catch-up contributions as Roth, so a plan without a Roth option blocks their catch-ups entirely.

Which plan fits

2026 IRA limit for comparison: $7,500 (+$1,100 age 50+).

Matching: how it works and when to offer it

A match is money you add when an employee saves. "50% of the first 6%" means an employee who saves 6% of pay gets another 3% from you; one who saves 2% gets 1%. You don't have to match, but it's the strongest reason employees enroll.

• Common formulas: 50% of the first 6% (costs up to 3% of pay), 100% of the first 3%, or 100% of the first 4%
• Vesting: a regular match can require employees to stay to keep it, up to a 3-year cliff or a 6-year graded schedule. Employees always own what they put in themselves.
• When to start: once payroll is stable and you can afford it every year. A modest match you can sustain beats a generous one you'd have to cut.
• Deposits: send employee contributions to the plan as soon as possible. For plans under 100 participants, within 7 business days of payday is a DOL safe harbor. Late deposits are one of the most common 401(k) violations.

What "safe harbor" means

Every regular 401(k) must pass yearly nondiscrimination tests showing that higher-paid employees (2026: earning $160,000+, or owners of more than 5%) aren't saving much more than everyone else. Small businesses fail these tests often, and the fix is refunding money to owners and managers. A safe harbor 401(k) skips most testing in exchange for a guaranteed employer contribution that vests immediately:

• Timing: a match-based safe harbor needs a notice to employees 30 to 90 days before the plan year starts. A brand-new safe harbor plan must run at least 3 months its first year, so set it up by October 1 for a calendar year.
• Late decision: the nonelective option can be added after the year starts, at 3% up to 30 days before year-end, or at 4% until the end of the following year. That makes it a useful fallback if testing looks like a problem.

Estimate what a match would cost

Tax credits that pay you to start

For employers with up to 100 employees (earning $5,000+) starting a new plan, claimed on IRS Form 8881:

• Startup costs: up to $5,000 a year for 3 years. With 50 or fewer employees it covers 100% of setup and admin costs, capped at $250 per eligible non-highly-paid employee (minimum $500).
• Auto-enrollment: another $500 a year for 3 years
• Employer contributions: up to $1,000 per employee earning $100,000 or less, at the full amount for years 1 and 2, then 75%, 50%, and 25%. Reduced for 51 to 100 employees.

Example: a 10-employee practice that starts a 401(k) with auto-enrollment and a 3% match for staff earning about $55,000 could claim roughly $2,500 + $500 + $10,000 in year one. That often covers most or all of the first-year cost.

Form 5500: the annual plan report

Every 401(k) and 403(b) plan files a Form 5500 each year with the Department of Labor, IRS, and PBGC. It reports the plan's assets, contributions, participants, and fees, and it's public, so anyone can look up your plan's filing. SEP and SIMPLE IRAs don't file one.

• Due: July 31 for calendar-year plans. Filing Form 5558 by then extends it to October 15.
• EFAST2 is the DOL's electronic filing system. You can file directly with its free IFILE tool, but most sponsors let their plan provider prepare it.
• FT William (ftwilliam.com) is software from Wolters Kluwer that many third-party administrators (TPAs) and recordkeepers use to prepare 5500s and plan documents. If your provider uses it, you'll get an email to review and e-sign in their portal, and the filing goes to the DOL as soon as you sign. You don't buy it yourself; just confirm your provider prepares the 5500 and who signs it.
• You're still responsible: the plan sponsor signs under penalty of perjury, even when the provider prepares it
• Late? Penalties can reach $250 a day from the IRS plus far more from the DOL. The DOL's Delinquent Filer Voluntary Compliance Program caps small-plan penalties at $750 per late filing ($1,500 per plan) if you file before the DOL contacts you.

EFAST2 filing system · DOL: Form 5500 series · DOL: Late filer program

Ongoing duties once you have a plan

• You're a fiduciary: choose and monitor investments and fees prudently. Many providers offer a 3(16) or 3(38) service that takes on part of this.
• Fidelity bond: covering at least 10% of plan assets
• Auto-enrollment: 401(k)s set up after December 29, 2022 must auto-enroll new employees at 3% to 10%, rising 1% a year to at least 10%. Exempt: businesses under 3 years old and those with 10 or fewer employees.
• State mandates: having a plan usually means filing an exemption with your state program. See each state checklist.

Payroll-connected providers (Guideline, Human Interest, ADP, Paychex) handle deposits, testing, and most filings automatically. Compare total fees, not just the monthly price.

Official resources

IRS: Plans for small businesses · DOL: Choosing a plan (Pub 3998) · IRS: Startup tax credits · Form 8881 · DOL: Plan administration · DOL: Form 5500

Business insurance

States require only one kind of business insurance: workers' compensation (New York adds disability and Paid Family Leave). Everything else is optional by law, but landlords, lenders, clients, and contracts often require it, and one uninsured claim can sink a small business.

The coverage types, in plain English

ERISA, the required bond, and fiduciary insurance

ERISA is the federal law that governs private employers' benefit plans, including 401(k)s and health plans. It makes anyone who manages a plan a fiduciary, legally bound to act only in employees' interest. It also requires plan documents, annual Form 5500 filings, and a bond.

Health insurance for employees

• Under 50 full-time or equivalent employees: no federal requirement to offer coverage
• 50 or more: you're an applicable large employer under the ACA. You must offer affordable, adequate coverage to full-time employees (30+ hours a week) or risk a penalty, and file Forms 1094-C and 1095-C each year.
• Small business health care tax credit: fewer than 25 full-time equivalents with below-average wages can get up to 50% of premiums back for two years, if you pay at least half of employee-only coverage and buy through the SHOP Marketplace. Claimed on Form 8941.
• Health reimbursement arrangements: a QSEHRA (under 50 employees) or ICHRA lets you reimburse employees' individual insurance premiums tax-free instead of buying a group plan

Medical malpractice insurance

For a health care practice, malpractice is usually the biggest insurance cost and the most confusing. Hospitals, insurers, and credentialing will ask for proof of it, so you need to understand your policy even in states that don't require one.

Who needs coverage

• Every licensed provider: physicians, NPs, PAs, therapists, and other clinicians, each with their own coverage or listed on a group policy
• The practice itself (entity coverage): patients usually sue the practice too, since a practice is responsible for its employees' care
• Employed support staff: nurses, medical assistants, and techs are usually covered under the entity policy. Confirm it.
• Contracted providers: independent contractors typically carry their own policy. Require proof and keep a copy.

Terms you'll see on a malpractice policy

Occurrence policy

Covers any incident that happened while the policy was active, even if the lawsuit comes years later. Costs more, but nothing extra is needed when you leave.

Claims-made policy

Covers only claims filed while the policy is active, for incidents after the retroactive date. The most common type. When it ends, you need tail coverage.

Tail coverage

Also called an extended reporting endorsement. Covers claims filed after a claims-made policy ends, for incidents during it. Often costs roughly two years' worth of premium, paid once. Many carriers give it free at death, disability, or retirement.

Nose coverage

Also called prior acts coverage. A new carrier covering your past work, so you don't need to buy tail from the old one. Ask for it when switching.

Retroactive date

The earliest date of care a claims-made policy covers. Keep it unchanged when you renew or switch carriers, or you create a gap.

Limits ($1M / $3M)

The policy pays up to $1 million for any one claim and $3 million total in a policy year. This is the most common requirement.

Shared vs. separate limits

On a group policy, shared limits mean all providers draw from one pot. Separate limits give each provider their own $1M/$3M.

Defense costs

"Outside the limits" means legal fees don't reduce the money available to pay a claim. "Inside the limits" means they do.

Consent to settle

Whether the carrier needs your okay to settle. A "hammer clause" can make you responsible for extra costs if you refuse a settlement the carrier recommends.

Step-rated premium

Claims-made premiums start low and rise each year for about five years as more past work becomes coverable. Budget for the increase.

License or board defense

Pays legal costs if a patient complains to your licensing board. Often included with a sublimit; check the amount.

National Practitioner Data Bank

A federal database. Any malpractice payment made for a named provider is reported and visible to hospitals, boards, and insurers during credentialing. Settlements naming only the practice entity generally aren't.

Patient compensation fund

A state fund that pays the part of a large claim above a provider's own policy. About nine states have one.

Risk retention group

An insurer owned by its policyholders, common for physician groups. Often cheaper, but not backed by state guaranty funds if it fails.

Malpractice rules by state

States that legally require coverage include Colorado ($1M/$3M), Connecticut, Kansas, Massachusetts, New Jersey, Rhode Island, and Wisconsin. Patient compensation funds operate in Indiana, Kansas, Louisiana, Nebraska, New Mexico, New York, Pennsylvania, South Carolina, and Wisconsin.

Put these in every provider contract

• Who provides malpractice coverage, the limits, and occurrence or claims-made
• Who pays the tail when the provider leaves. This is the most common dispute. Some contracts split it by length of service or by who ended the relationship.
• That the provider must report any claim, board complaint, or incident right away
• Cooperation with the carrier's defense

When your malpractice coverage needs to change

• New location or state: confirm the policy covers care delivered there
• Telehealth: coverage must include every state where your patients are located during the visit, not just where the provider sits
• New provider or service line: add them before their first patient. Procedures like injections, aesthetics, or surgery can change your rating.
• A provider leaves: arrange tail or nose coverage before their last day
• Switching carriers: keep your retroactive date or get nose coverage, so there's no gap

Cyber, HIPAA, and patient data

• A breach of patient data means notifying affected patients within 60 days, and HHS within 60 days if 500+ people are affected (smaller breaches are reported yearly). Cyber policies often pay for the forensic, legal, and notification work.
• Vendors who handle patient data (billing, IT, cloud storage) must sign a business associate agreement. Check whether your cyber policy covers breaches caused by vendors.

National Practitioner Data Bank · MN expert affidavit law · NY Section 18 status (MLMIC)

Buying tips

• An independent broker can quote several carriers at once at no cost to you; they're paid by the carrier
• Read your lease, contracts, and payer agreements for required coverage types and limits before you buy
• Clients and landlords will ask for a certificate of insurance (COI), sometimes naming them as additional insured. Your carrier provides these.
• Review coverage every year at renewal and whenever you add a location, a service line, or staff

Official resources

DOL: ERISA bonding rules · IRS: ACA employer requirements · IRS: Small business health care credit · HHS: HIPAA breach notification

Workplace posters

Every employer must display federal and state labor law notices where employees can easily see them, like a break room or near the time clock. Each state checklist lists that state's posters; here's how to get them.

Remote employees

Employees who never come to the office still need access to the notices. Post them on your intranet or HR portal, or email them, and tell employees where to find them. New York requires employers to provide electronic copies of state postings in addition to the physical ones.

Harassment prevention training

Federal law doesn't require training, but it's a key defense if a harassment claim is filed. A handful of states and cities make it mandatory for private employers:

State retirement mandates

A growing number of states, including Minnesota, New York, California, Illinois, Oregon, Maryland, and Virginia, require employers that don't offer a 401(k) or similar plan to enroll employees in a state-run Roth IRA program. Employers pay nothing into it; you just set up the payroll deductions. If you already offer a plan, you usually still have to file an exemption with the state. Each state checklist covers its program.

Business basics

The terms state forms assume you already know, in plain English.

Choosing a business structure

An LLC and a corporation are legal structures you form with a state. S corp and C corp are tax labels from the IRS. That's why an LLC can also be taxed as an S corp. How to set up each one

How to set up each structure

The key thing to know: you form an LLC or a corporation with a state, and you choose how it's taxed with the IRS. "S corp" and "C corp" aren't things you form; they're tax elections.

Becoming an S corp, step by step

1. Check you qualify. No more than 100 shareholders, all U.S. citizens or residents (no partnerships or corporations as owners), and only one class of stock.
2. Form an LLC or corporation with your state and get an EIN.
3. File Form 2553 with the IRS on time. Every shareholder must sign it. An LLC filing Form 2553 doesn't also need Form 8832.
4. Run payroll for owners who work in the business and pay them a reasonable salary. The rest of the profit can be paid as distributions without Social Security and Medicare tax, which is where the savings come from.
5. Check your state. Most states follow the federal S election, but a few treat S corps differently or charge their own taxes. Your state's checklist covers its entity taxes.

An S election usually starts to pay off once profit is high enough that the payroll tax savings beat the added payroll and tax-prep costs. A CPA can run the numbers for you in one meeting.

Where to file in your state

IRS: Form 2553 (S election) · IRS: Form 8832 (entity classification) · IRS: S corporations · IRS: Get an EIN · SBA: Choose a business structure

Words you'll see on state forms

Domestic vs. foreign

Your business is domestic in the state where you formed it and foreign everywhere else. "Foreign" has nothing to do with other countries. A Michigan LLC opening a clinic in Minnesota is a foreign LLC in Minnesota.

Foreign qualification

Registering your existing business to operate in another state. The approval is usually called a Certificate of Authority. You keep your original formation; you don't form a second company.

Registered agent

A person or company with a physical address in the state who accepts legal papers and state notices for you. Every state requires one, and a P.O. box doesn't count.

EIN (FEIN)

Your federal tax ID from the IRS, like a Social Security number for the business. Free. You need it for payroll, bank accounts, and most state registrations.

State tax ID

A separate number from the state revenue department for sales tax and income tax withholding.

DBA / assumed name

A name you operate under that isn't your legal name, like "Lakeside Physical Therapy" for "LPT Holdings LLC." Usually registered with the state.

Good standing

The state's confirmation that you're current on filings and fees. Some states ask for a certificate of good standing from your home state when you register as foreign.

Nexus

Enough connection to a state (an office, employees, sales) that you owe its taxes. Opening a location almost always creates it.

W-2 employee vs. 1099 contractor

Calling someone a contractor doesn't make them one. The IRS and each state look at how the work is actually controlled, and states can use stricter tests than the IRS. Misclassifying employees can mean back taxes and penalties.

Registered agent: do it yourself or use a service?

Every state requires a registered agent (Michigan calls it a resident agent) with a physical address in that state, available during business hours to accept lawsuits and official notices. You can be your own agent or pay a company like Bizee, Northwest, or ZenBusiness to do it.

Rule of thumb: be your own agent in your home state if someone is reliably at a local office. Use a service for every state where you don't have a staffed address. You can switch agents later by filing a change form with the state.

What you can handle yourself, and when to hire help

Sales tax basics

Sales tax is collected by you, from your customer, and sent to the state. It isn't a tax on your profit, but you're on the hook if you don't collect it. Five states have no statewide sales tax: Alaska (local taxes only), Delaware, Montana, New Hampshire and Oregon.

Seller's permit

The registration that lets you collect sales tax. States call it a sales tax permit, license, certificate of authority, or TPT license (Arizona). Get it before your first taxable sale. Most states charge nothing.

Resale certificate

A form you give a supplier so you don't pay sales tax on inventory you'll resell. The tax gets collected later, from your customer. You need a seller's permit to use one, and it's only for items you resell, not supplies you use.

Exemption certificate

A form a tax-exempt buyer (a nonprofit hospital, a government agency) gives you so you don't charge them tax. Keep a copy; if you're audited without it, you owe the tax.

Nexus

Enough connection to a state that you must collect its sales tax. An office, an employee, or inventory there creates physical nexus. Since the 2018 Wayfair Supreme Court case, selling enough into a state creates economic nexus too, usually $100,000 a year.

Marketplace facilitator

Amazon, Etsy, eBay and similar platforms collect and send sales tax for sales made through them in every sales tax state. You still need your own permit for sales from your own website.

Multistate certificates

The Streamlined Sales Tax certificate and the MTC Uniform Resale Certificate can be used in many states instead of each state's own form. The table below shows each state's own form.

Tools: once you sell in several states, sales tax software (Avalara, TaxJar, Stripe Tax, or what your shopping cart includes) calculates rates by address and files returns for you.

Sales tax by state

Economic nexus thresholds are for sellers with no physical presence. Local rates add to the state rate in many states.

Opening a restaurant

Restaurants answer to more agencies than almost any other small business, and most of them are local. The order matters: confirm zoning, get plan review, build, pass inspections, then open. Liquor licenses run on their own, slower clock, so start that application as early as the state allows.

Plan review

The health department reviews your floor plan, equipment, sinks and finishes before you build or remodel. Changes after construction are expensive, so get approval first.

Food service license (health permit)

Issued after a pre-opening inspection, usually by the county or city health department, and renewed every year. Routine unannounced inspections follow, and some cities post letter grades.

FDA Food Code

A model set of food safety rules. Nearly every state adopts a version of it, so the basics (temperatures, handwashing, labeling, pests) are similar everywhere.

Certified Food Protection Manager

A manager who passed an accredited exam such as ServSafe Manager, NRFSP, Prometric or 360training. Most states require at least one; certificates usually last 5 years.

Food handler card

A short, inexpensive course for every employee who handles food. Required statewide in some states, often within 30 to 60 days of hire, and by some counties and cities elsewhere.

Control state

A state that sells spirits at wholesale (and sometimes retail) itself. Restaurants there buy liquor through the state system instead of private distributors.

Quota license

Many states cap full liquor licenses by population. When none are available, you buy an existing license from another business, which can cost tens of thousands of dollars or more. Beer and wine licenses are usually easier.

Dram shop liability

Laws that can make a restaurant liable for harm caused by a customer it over-served. That's why liquor liability insurance and server training matter.

Restaurant rules by state

Who issues the health permit, and whether certification and server training are required statewide. Local rules can be stricter.

Industry licenses by state

Registering your company with the state doesn't license you to do the work. Many fields need a license for the business itself (a salon, a contractor, a child care center) and for the people doing the work. Pick your industry and state to see who issues them.

New business or new location?

New business: you form the company in that state (Articles of Organization for an LLC, Articles of Incorporation for a corporation), then register for taxes and payroll.

New location: your company already exists in another state. You register it as a foreign business in the new state, then set up that state's tax, payroll, and insurance accounts. Your home-state filings continue as before.