How do I start the process of setting up the correct paper work, to deduct federal, state, and/or medicare and medicad taxes from my employees?

I would buy a small business software package or use an on-line payroll service. Intuit currently has an offer for a 6 month free trial, then $9.95/month. (I hate mentioning a company name because they don't pay me). That may not be the best deal that is out there, but it is one deal that is out there.

Denetra, you need to get both a federal and state tax ID number. You'll get a Circular E for the federal, and whatever from your state. You should also check the local city you're in for that. Different localities work differently, even within the same area, so you need to check with them.

Here's the IRS page for applying for federal:
Employer ID Numbers (EINs) (http://www.irs.gov/businesses/small/article/0,,id=98350,00.html)

The Circular E contains all the info you need about withholding both federal and FICA, and FUTA, including the exemptions, withholding tables, when to pay it, etc. If you hire a payroll service to do all this for you, they should also make sure they tell you when stuff is due, etc. They may even keep and pay the taxes for you.

Do a Google on your state. Put the state name in and taxes. Like "Texas taxes" and you should easily find your state office, which would have information about what type of taxes they have. Since you're asking, I assume they have withholding, but they may also have unemployment, and maybe a state-run disability program. (That could be private, but you still need to check compliancy rules on it.)

Big subject, so I would suggest doing the above, see what you can find out from some phone calls to these places, apply for your ID's, etc. and then come back with specific questions you might have on anything you don't understand. The last page of the Circular E shows how to get forms, and when you call the state and/or city, just ask for what you need. You'll need W-4's and quarterly filing forms (e.g. 941) to start. Normally you'll start getting the necessary forms automatically once you start filing.