The payroll process includes:
Calculating and preparing paychecksAccounting for amounts withheld from these paychecksMaking deposits of taxes withheld from paychecksReporting 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). 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.
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:
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. 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.
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 orpayroll 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. Want to read more content like this? Sign up for The Balance’s newsletter for daily insights, analysis, and financial tips, all delivered straight to your inbox every morning! 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.
