As a small business owner, one of your most important responsibilities for payroll is to make sure federal payroll taxes are deposited according to IRS requirements.
The payroll process includes:
- Calculating and preparing paychecks
- Accounting for amounts withheld from these paychecks
- Making deposits of taxes withheld from paychecks
- Reporting on taxes withheld and deposits made
This article gives you the basics of the deposit part of this process.
- The timing of payroll tax deposits depends on the size of your company’s payroll based on information from IRS Form 941, the quarterly wage and tax statement.
- Your schedule for deposits may be semiweekly if you have a larger payroll, or monthly if you have a smaller payroll.
- You must make deposits using an IRS-approved electronic funds transfer system, unless your tax due for the quarter is less than $2,500.
What Are Payroll Taxes?
First, let's define what is meant by "payroll taxes." They are the taxes you must pay on your payroll (the amounts you pay to employees for the work they have done). Payroll taxes are reported and paid through IRS Form 941, the quarterly wage and tax report required for all employers. These taxes are:
- Federal income taxes (FIT): These are taxes you withhold from your employees' paychecks. FIT pays for federal expenses such as defense, education, transportation, energy, and the environment, as well as for interest on the federal debt.
- FICA taxes (Social Security and Medicare taxes): These are taxes you withhold from employees and the matching amount you set aside to be paid by your company. FICA stands for Federal Insurance Contributions Act.
The IRS uses the term "employment taxes" to mean federal income taxes, FICA taxes, and federal unemployment (FUTA) taxes. Employers pay and report FUTA taxes separately from payroll taxes—you don’t withhold this tax from employees’ pay.
How the IRS Determines Payroll Tax Deposit Dates
You can’t deposit payroll taxes whenever you want. Your schedule and frequency is based on a lookback period. Here are the steps to find the correct payroll deposit dates for your business:
Find the lookback period: The lookback period is the time frame you use to determine whether you deposit taxes on a monthly or semiweekly basis. Your tax liability during the lookback period determines which schedule you must follow. The lookback period if you’re using Form 941 starts July 1 of one calendar year and runs to June 30 of the next calendar year.
The lookback period for 2023 would be the 12-month period ending June 30, 2022.
Find the amount of your total tax liability during the lookback period: The best way to find the amounts for your payroll taxes paid during the lookback period is to look at your 941 form (Quarterly Wage and Tax Return) for each quarter during the lookback period.
Go to Line 12 (total taxes after adjustments and credits).
- If you reported $50,000 or less of taxes for the lookback period, you're a monthly schedule depositor.
- If you reported more than $50,000, you're a semiweekly schedule depositor.
- If you are a new employer and you did not have employees during the lookback period, you are a monthly depositor for the first calendar year of your business.
Payroll Tax Deposit Due Dates
Monthly deposits must be made by the 15th day of the month following the month when you paid employees. For example, if you paid employees in July, you must make a deposit no later than August 15.
Semi-weekly deposit due dates are determined by payday:
- If payday falls on Saturday, Sunday, Monday, or Tuesday, deposit taxes by the following Friday.
- If payday falls on Wednesday, Thursday, or Friday, deposit taxes by the following Wednesday.
There is a special rule for large amounts of tax due, called the next-day deposit rule. If your payroll tax obligation is $100,000 or more, you must deposit taxes the next day after you’ve accumulated that liability, and you must continue to make next-day deposits for the rest of that year and the following year.
Payroll Deposit Penalties
You must deposit 100% of the tax you owe on or before the due date. You may be penalized if you deposit less than the required amount, or if you mail these payments instead of using an approved electronic deposit system.
There is no penalty for deposit errors if they don't exceed $100 or 2% of the amount of employment taxes required to be deposited. You must make up the balance by a predefined make-up day to avoid further penalties.
How To Make Federal Payroll Tax Deposits
You can pay with Form 941 if your total tax liability for the quarter is less than $2,500. In all other situations, you must deposit electronically using the IRS EFTPS online system or another IRS-approved electronic method.
Payroll Services and Payroll Software
If all of this work seems overwhelming, consider either a payroll service or payroll software. A payroll service is an outside company that takes over all of your payroll functions, including sending out reports and payments when they are due, for both federal and state payroll taxes.
Payroll software can help you with all the details and can make the deposits for you by connecting with your payroll account. Be sure the software can remind you when payments are due.
Having payroll software or a payroll service doesn't give you a pass on knowing your tax responsibilities with the IRS. You still need to be aware of what reports and payments are due and when.
Frequently Asked Questions (FAQs)
How do I make federal payroll tax deposits?
You must make payroll tax deposits by electronic funds transfer (EFT). You can’t send a check to the IRS for these deposits. Most businesses use the IRS Electronic Federal Tax Payment System (EFTPS).
You will need to enroll with the system to begin making deposits. If you don’t want to use EFTPS, you may be able to work with your financial institution, your payroll service, or another trusted service to make your payroll tax deposits.
Where do I send my 941 payment?
You may be able to send in your payroll tax deposit by mail if your total taxes due are less than $2,500 for the current or prior quarter and you didn’t have $100,000 in taxes on any day during a deposit period. The IRS mailing address depends on the state where your business is located. See the Instructions for Form 941 (Page 8) for a list of these addresses.
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