Compliance Checklist for Startups: Payroll, Sales Tax, and Withholding

Why this checklist matters

Startups that treat compliance as a checklist early on avoid costly fines, manage cash flow, and build trust with investors and employees. In my practice advising early-stage companies, the most common failures are missed registrations and inconsistent deposit schedules — both preventable with a short, repeatable process.

Core components (actionable steps)

• Register for employer IDs and accounts

• Apply for an EIN with the IRS if you don’t have one (IRS) (https://www.irs.gov/businesses/small-businesses-self-employed/apply-for-an-employer-identification-number-ein-online).

• Register with your state Department of Revenue and workforce agency for sales tax and unemployment/withholding accounts.

• Correctly classify workers

• Use IRS guidance on employee vs. contractor status and document why you classified each worker as an employee or independent contractor (see IRS criteria: https://www.irs.gov/businesses/small-businesses-self-employed/independent-contractor-self-employed-or-employee).

• Set up payroll systems and schedules

• Choose payroll software or a payroll provider that files deposits and returns for you and produces W‑2s/1099s.

• Determine your federal payroll deposit schedule (monthly vs. semiweekly) and follow it precisely; see IRS guidance on deposit schedules (https://www.irs.gov/payments/understanding-your-employer-deposit-schedule) and our related article on payroll deposit schedules.

• File Form 941 (quarterly) or Form 944 (annual) as required (https://www.irs.gov/forms-pubs/about-form-941).

• Withholding and employee forms

• Collect Form W‑4 from employees and use the current IRS withholding tables or automated calculations in payroll software (https://www.irs.gov/forms-pubs/about-form-w-4).

• Remit withheld federal income tax, Social Security and Medicare taxes timely to avoid trust fund penalties (IRS Pub. 15, Employer’s Tax Guide: https://www.irs.gov/pub/irs-pdf/p15.pdf).

• Sales tax: nexus, registration, collection, and filing

• Determine where you have sales tax nexus (economic, physical, marketplace nexus). Nexus rules vary by state — check your state revenue department and consider the Streamlined Sales Tax resources for multistate sellers (https://www.streamlinedsalestax.org/).

• Register for sales tax permits before you make taxable sales. See our step‑by‑step on state sales tax permits.

• Configure point‑of‑sale and e‑commerce systems to collect the correct rate by jurisdiction and maintain exemption certificates for tax‑exempt customers.

• File and remit returns according to the state schedule (monthly, quarterly, yearly) to avoid late penalties.

Practical checklist (first 90 days)

1. Obtain EIN and set up business bank account.
2. Register for state withholding and unemployment accounts.
3. Register for required state sales tax permits in states where you have nexus.
4. Choose payroll software or a payroll service and run a test payroll cycle.
5. Collect W‑4s and, for contractors, issue 1099‑NEC at year‑end if required.
6. Document procedures: payroll process, approval workflow, tax remittance calendar, and where you store exemption certificates.

Frequencies, forms, and pointers

• Payroll deposits: follow IRS deposit schedule (monthly or semiweekly) — missed deposit deadlines can trigger Trust Fund Recovery Penalties (see IRS employer pages).
• Payroll filings: Form 941 quarterly (most employers); Form 944 for qualifying small employers (IRS Form 941 info: https://www.irs.gov/forms-pubs/about-form-941).
• Sales tax filings: state schedules vary — many states require monthly filings for new registrants; confirm with each state revenue office.

Common mistakes and how to avoid them

• Late registration: Register before taking orders or hiring to avoid back taxes. In one client case, failing to register for a sales tax permit created a state assessment of more than $25,000 after an audit.
• Misclassification: Maintain a written analysis for each contractor and revisit it when duties change.
• Relying on a single person: Separate duties (approval, payment, reconciliation) to reduce error and fraud risk.

When to get help

• Hire a CPA or payroll specialist if you: exceed multiple‑state payrolls, have complex equity compensation, or face an audit. I regularly recommend clients get advisory help when they add 20+ employees or expand sales into multiple states.
• Consider a registered agent or sales tax automation tool if you sell nationally.

Related FinHelp articles

• Avoiding Common Payroll Reporting Mistakes That Trigger Audits — practical fixes for employer reporting: https://finhelp.io/glossary/avoiding-common-payroll-reporting-mistakes-that-trigger-audits/
• Payroll deposit schedules — which employers follow monthly vs. semiweekly rules: https://finhelp.io/glossary/payroll-deposit-schedules-which-employers-follow-monthly-vs-semiweekly-rules/
• State sales tax permits — registration and compliance steps: https://finhelp.io/glossary/state-sales-tax-permits-registration-and-compliance-steps/

Authoritative sources and further reading

• IRS: Employer’s Tax Guide (Publication 15) and Form 941 pages (https://www.irs.gov/) — check the IRS site for the latest tables and deposit rules.
• SBA: Small business tax basics and state filing resources (https://www.sba.gov/).
• Streamlined Sales Tax Governing Board for multistate sales tax resources (https://www.streamlinedsalestax.org/).

Professional disclaimer

This article is educational and not a substitute for personalized tax or legal advice. Consult a qualified CPA or state tax advisor to tailor this checklist to your startup’s facts and locations.