How and When Do I Make Payroll Tax Deposits?
Monthly Deposit Schedules vs. Semi-Weekly Deposit Schedules
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.
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). These include:
How the IRS Determines Payroll Tax Deposit Dates
The IRS determines the payroll tax deposit schedule for employers based on their total gross Social Security/Medicare liability for the 12-month period ending on the most recent June 30. This time period is called a look-back period.
How Is the Look-Back Period Determined?
A look-back period refers to the time and amount in the method you use for your payroll tax deposit. The IRS says it's the total amount of employment taxes reported by the employer in the 12-month period ending the preceding June 30. So, the payroll deposit schedule you use depends mostly on the amount of payroll taxes you owe, based on the past.
This one is confusing. I'll use an example from Patriot Software: "For instance, the look-back period to submit employment tax deposits in 2017 would be the 12-month period ending June 30 of 2016."
Finding Your Total Payroll Tax Liability
The best way to find the amounts for your payroll taxes paid during the look-back period is to look at the 941 Forms (the Quarterly Wage and Tax Return) for each quarter. Go to Line 10: Total Taxes After Adjustments. Adding all four 941 forms together will give you the amount used to determine your tax deposit schedule.
Determining Your Payroll Tax Deposit Schedule
If you are a new employer and you did not have employees during this "look back" period, you are a monthly depositor. Other considerations include:
- If your payroll tax obligation is less than $2,500 in a quarter, you can deposit these taxes with a "timely filed return" (assuming a Form 941).
- If your total payroll taxes for the "look back period" were $50,000 or less, you are a monthly depositor.
- If your total payroll taxes for the "look back period" were more than $50,000, you make deposits on the semi-weekly schedule.
More on Tax Deposit Dates
Monthly deposits must be made by the 15th day of the following month. So your payroll deposit for March must be made by April 15.
Semi-weekly deposits are made on the following schedule:
- Deposit taxes from payrolls paid on Saturday, Sunday, Monday or Tuesday by the following Friday.
- Deposit taxes from payrolls paid on Wednesday, Thursday or Friday by the following Wednesday.
- If your payroll tax obligation is $100,000 or more, you must deposit the next day and you must continue to make next-day deposits for the rest of that year and the following year.
- There is no penalty for deposit errors if they don't exceed $100 or 2 percent of the amount of employment taxes required to be deposited. You must make up the balance due by a pre-defined make-up day in order to avoid further penalties.
- If a deposit is required on a day that is not a banking day, the deposit is considered timely if it is made by the close of the next banking day. In addition to federal and state bank holidays, Saturday and Sunday are non-banking days.
- Semiweekly depositors have at least three banking days following the close of the semiweekly period to deposit taxes accumulated during the semiweekly period.
How to Make Federal Payroll Tax Deposits
The IRS requires that all payroll tax deposits be made electronically, using the EFTPS online system. You cannot mail deposits using a deposit coupon; they don't exist anymore.
Go to the EFTPS website. You register and then use the website to pay your taxes; the amounts are deducted from your business bank account.
Ready for a Payroll Service or Payroll Software?
If all of this work seems overwhelming, you might want to consider either a payroll service or payroll software.
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.
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.
Having payroll software or a payroll service doesn't give you a pass on knowing your responsibilities as an employer. You still need to be aware of what reports and payments are due and when.