The moment you hire your first employee in the U.S. is when tax and labor compliance mistakes are most likely to happen. What Japan handles through unified employment insurance and social insurance enrollment procedures is split across separate federal and state systems in the U.S., and missing a registration can lead to penalties and back taxes. This article walks Japanese companies and sole proprietors through the required steps, in chronological checklist form, for hiring their first U.S. employee.
Registrations Required Before Hiring
1. Obtain a Federal EIN
Any company or sole proprietor hiring employees needs an EIN from the IRS. If you already obtained one when forming your entity, this step is done.
2. Register a State Withholding Account
You’ll need to register a state income tax withholding account with the tax authority of the state where your employee works (not required in states with no state income tax, like Texas or Florida).
3. Register for State Unemployment Insurance (SUTA)
Every state requires employers to register for its unemployment insurance program and pay SUTA tax based on payroll. New employers are assigned a state-specific “new employer rate,” which transitions to an employer-specific “experience rate” after a few years of history.
4. Obtain Workers’ Compensation Insurance
Nearly every state requires workers’ compensation insurance once you have even one employee (the exact employee-count threshold varies by state). This is usually obtained through a private insurer, though some states use a state fund.
Paperwork to Have Ready by Day One
- Form I-9 (Employment Eligibility Verification): Within 3 business days of the start date, verify the employee’s identity and work-authorization documents (passport, work visa, EAD, etc.) and complete the form. The employer is required to retain it.
- Form W-4 (Withholding Certificate): Used to calculate federal income tax withholding. Some states also require a separate state-specific version.
- New Hire Reporting: Most states require reporting new hires to a designated state agency, typically within 20 days of the start date (a federal program originally aimed at tracking child support obligations).
The Full Picture of Payroll Taxes
Employers must withhold and remit four broad categories of tax (rates and thresholds as of 2026):
| Tax | Employee share | Employer share | Notes |
|---|---|---|---|
| Social Security (OASDI) | 6.2% | 6.2% | 2026 wage base cap is $184,500 |
| Medicare | 1.45% | 1.45% | No cap; an additional 0.9% applies to high earners on the employee side |
| Federal Unemployment (FUTA) | None | Effectively about 0.6% | Base rate is 6.0% on the first $7,000, but a credit of up to 5.4% applies if SUTA is paid on time |
| State Unemployment (SUTA) | Varies by state | New-employer rate to experience rate | Rates and wage bases vary by state |
Filing and Deposit Schedule
Withheld FICA and federal income taxes must be deposited electronically (via EFTPS) on a schedule that depends on your deposit-size classification, either “monthly depositor” or “semi-weekly depositor.” Employers must also file Form 941 (Employer’s Quarterly Federal Tax Return) each quarter, issue W-2s to employees at year-end, and file W-2/W-3 with the Social Security Administration. First-year employers frequently misjudge their deposit classification, so we strongly recommend automating this through payroll software (Gusto, QuickBooks Payroll, etc.) or a payroll service provider.
Frequently Asked Questions
Q: Can I avoid all this by hiring the person as a 1099 contractor instead?
A: If the actual working relationship looks like employment — direction and control over how the work is done — the IRS or a state agency can reclassify the worker as a W-2 employee regardless of what the contract says, exposing you retroactively to missed withholding and penalties. Classification is based on the facts of the working relationship (supervision, set hours, ability to work for others), not the label in the contract.
Q: What if a remote employee lives in a different state?
A: As a general rule, withholding and SUTA registration follow the state where the employee actually works (lives), regardless of where your company is incorporated. This means a separate registration obligation can arise for each state where you have a remote employee — an easy thing to miss in the remote-work era.
This article is provided for general informational purposes only and is not a substitute for individualized labor or tax advice. Rules vary by state, so please confirm the latest state requirements and consult a professional before registering.
Summary
Hiring your first employee requires several registrations at both the federal and state level, and missing one can lead to back taxes and penalties. State-specific SUTA and workers’ compensation obligations are especially easy to overlook. Start preparing one to two months before your intended start date, and use payroll software or professional support to get your setup right from day one.
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