Publication 15 |
2000 Tax Year |
Chapter 11 Depositing Taxes
In general, you must deposit income tax withheld and both the
employer and employee social security and Medicare taxes (minus any
advance EIC payments) by mailing or delivering a check, money order,
or cash to an authorized financial institution. However, some
taxpayers are required to deposit by electronic funds transfer. See
How To Deposit on page 20 for information on electronic
deposit requirements for 2001.
Payment with return.
Beginning with the first quarter of 2001, you may make a payment
with Form 941 instead of depositing if:
- You accumulate less than a $2,500 tax liability (reduced by
any advance earned income credit) during the quarter (line 13 of Form
941). However, if you are unsure that you will accumulate less than
$2,500, deposit under the appropriate rules so that you will not be
subject to failure to deposit penalties, or
- You are a monthly schedule depositor (defined below) and
make a payment in accordance with the Accuracy of Deposits Rule
discussed on page 19. This payment may be $2,500 or more.
Caution: Only monthly schedule depositors are allowed
to make this payment with the return.
Separate deposit requirements for nonpayroll (Form 945) tax
liabilities.
Separate deposits are required for nonpayroll and payroll income
tax withholding. Do not combine deposits for Forms 941 and
945 tax liabilities. Generally, the deposit rules for nonpayroll
liabilities are the same as discussed below, except that the rules
apply to an annual rather than a quarterly return period. Thus, the
$2,500 threshold for the deposit requirement discussed above applies
to Form 945 on an annual basis. See the separate Instructions for
Form 945 for more information.
When To Deposit
There are two deposit schedules--monthly or
semiweekly--for determining when you deposit social
security, Medicare, and withheld income taxes. These schedules tell
you when a deposit is due after a tax liability arises (e.g., when you
have a payday). Prior to the beginning of each calendar year, you must
determine which of the two deposit schedules you are required to use.
The deposit schedule you must use is based on the total tax liability
you reported on Form 941 during a four-quarter lookback period
discussed below. Your deposit schedule is not
determined by how often you pay your employees or make deposits
(see Application of Monthly and Semiweekly Schedules on
page 19).
These rules do not apply to Federal unemployment (FUTA) tax. See
section 14 for information on depositing FUTA tax.
Lookback period.
Your deposit schedule for a calendar year is determined from the
total taxes (not reduced by any advance EIC payments) reported on your
Forms 941 (line 11) in a four-quarter lookback period. The lookback
period begins July 1 and ends June 30 as shown in Table 1 below. If
you reported $50,000 or less of taxes for the lookback period, you are
a monthly schedule depositor; if you reported more than $50,000, you
are a semiweekly schedule depositor.
Table 1. Lookback Period for Calendar Year 1999
Adjustments and the lookback rule.
Determine your tax liability for the four quarters in the lookback
period based on the tax liability as originally reported on
Form 941. If you made adjustments to correct errors on previously
filed Forms 941, these adjustments do not affect the amount of tax
liability for purposes of the lookback rule. If you report adjustments
on your current Form 941 to correct errors on prior Forms 941, include
these adjustments as part of your tax liability for the current
quarter. If you filed Form 843 to claim a refund for a prior period
overpayment, your tax liability does not change for either the prior
period or the current period for purposes of the lookback rule.
Example:
An employer originally reported a tax liability of $45,000 for the
four quarters in the lookback period ending June 30, 2000. The
employer discovered during January 2001 that the tax during one of the
lookback period quarters was understated by $10,000 and corrected this
error with an adjustment on the 2001 first quarter return. This
employer is a monthly schedule depositor for 2001 because the lookback
period tax liabilities are based on the amounts originally reported,
and they were less than $50,000. The $10,000 adjustment is part of the
2001 first quarter tax liability.
Monthly Deposit Schedule
You are a monthly schedule depositor for a calendar year if the
total taxes on Form 941 (line 11) for the four quarters in your
lookback period were $50,000 or less. Under the monthly deposit
schedule, deposit Form 941 taxes on payments made during a month by
the 15th day of the following month.
Monthly schedule depositors should not file Form 941 on
a monthly basis. Do not file Form 941-M, Employer's
Monthly Federal Tax Return, unless you are instructed to do so by an
IRS representative.
New employers.
During the first calendar year of your business, your tax liability
for each quarter in the lookback period is considered to be zero.
Therefore, you are a monthly schedule depositor for the first calendar
year of your business (but see the $100,000 Next-Day Deposit Rule
on page 19).
Semiweekly Deposit Schedule
You are a semiweekly schedule depositor for a calendar year if the
total taxes on Form 941 (line 11) during your lookback period were
more than $50,000. Under the semiweekly deposit schedule, deposit Form
941 taxes on payments made on Wednesday, Thursday, and/or Friday by
the following Wednesday. Deposit amounts accumulated on payments made
on Saturday, Sunday, Monday, and/or Tuesday by the following Friday.
Table 2. Semiweekly Deposit Schedule
Deposit period.
The term deposit period refers to the period during
which tax liabilities are accumulated for each required deposit due
date. For monthly schedule depositors, the deposit period is a
calendar month. The deposit periods for semiweekly schedule depositors
are Wednesday through Friday and Saturday through Tuesday.
Semiweekly deposit period spanning two quarters.
If a quarter ends on a day other than Tuesday or Friday, taxes
accumulated on the days during the quarter just ending are subject to
one deposit obligation, and taxes accumulated on the days covered by
the new quarter are subject to a separate deposit obligation. For
example, if one quarter ends on Thursday, taxes accumulated on
Wednesday and Thursday are subject to one deposit obligation and taxes
accumulated on Friday are subject to a separate obligation. Separate
deposits are required because two different quarters are affected.
Summary of Steps in Determining Your Deposit Schedule
Example of Monthly and Semiweekly Schedules
Rose Co. reported Form 941 taxes as follows:
Deposit Schedule Example
Rose Co. is a monthly schedule depositor for 2000 because its tax
liability for the four quarters in its lookback period (third quarter
1998 through second quarter 1999) was not more than $50,000. However,
for 2001, Rose Co. is a semiweekly schedule depositor because the
total taxes exceeded $50,000 for the four quarters in its lookback
period (third quarter 1999 through second quarter 2000).
Deposits on Banking Days Only
If a deposit is required to be made 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,
Saturdays and Sundays are treated as nonbanking days. For example, if
a deposit is required to be made on a Friday and Friday is not a
banking day, the deposit will be considered timely if it is made by
the following Monday (if that Monday is a banking day).
Semiweekly schedule depositors have at least 3 banking
days to make a deposit. That is, if any of the 3 weekdays after the
end of a semiweekly period is a banking holiday, you will have one
additional banking day to deposit. For example, if a semiweekly
schedule depositor accumulated taxes for payments made on Friday and
the following Monday is not a banking day, the deposit normally due on
Wednesday may be made on Thursday (allowing 3 banking days to make the
deposit).
Application of Monthly and Semiweekly Schedules
The terms "monthly schedule depositor" and "semiweekly
schedule depositor" do not refer to how often your
business pays its employees or even how often you are required to make
deposits. The terms identify which set of deposit rules you must
follow when an employment tax liability arises. The deposit rules are
based on the dates wages are paid; not on when tax
liabilities are accrued.
Monthly schedule example.
Spruce Co. is a monthly schedule depositor with seasonal employees.
It paid wages each Friday. During March it paid wages but did not pay
any wages during April. Under the monthly deposit schedule, Spruce Co.
must deposit the combined tax liabilities for the four March paydays
by April 15. Spruce Co. does not have a deposit requirement for April
(due by May 15) because no wages were paid and, therefore, it did not
have a tax liability for April.
Semiweekly schedule example.
Green Inc., which has a semiweekly deposit schedule, pays wages
once each month on the last day of the month. Although Green Inc. has
a semiweekly deposit schedule, it will deposit just once a month
because it pays wages only once a month. The deposit, however, will be
made under the semiweekly deposit schedule as follows: Green Inc.'s
tax liability for the October 31, 2001 (Wednesday) payday must be
deposited by November 7, 2001 (Wednesday). Under the semiweekly
deposit schedule, liabilities for wages paid on Wednesday through
Friday must be deposited by the following Wednesday.
$100,000 Next-Day Deposit Rule
If you accumulate a tax liability (reduced by any advance EIC
payments) of $100,000 or more on any day during a deposit period,
you must deposit the tax by the next banking day, whether you
are a monthly or semiweekly schedule depositor.
For purposes of the $100,000 rule, do not continue accumulating tax
liability after the end of a deposit period. For example, if a
semiweekly schedule depositor has accumulated a liability of $95,000
on a Tuesday (of a Saturday-through-Tuesday deposit period) and
accumulated a $10,000 liability on Wednesday, the $100,000 next-day
deposit rule does not apply. Thus, $95,000 must be deposited by Friday
and $10,000 must be deposited by the following Wednesday.
In addition, once you accumulate at least $100,000 in a deposit
period, stop accumulating at the end of that day and begin to
accumulate anew on the next day. For example, Fir Co. is a semiweekly
schedule depositor. On Monday, Fir Co. accumulates taxes of $110,000
and must deposit this amount on Tuesday, the next banking day. On
Tuesday, Fir Co. accumulates additional taxes of $30,000. Because the
$30,000 is not added to the previous $110,000 and is less than
$100,000, Fir Co. must deposit the $30,000 by Friday following the
semiweekly deposit schedule.
If you are a monthly schedule depositor and accumulate a $100,000
tax liability on any day, you become a semiweekly schedule depositor
on the next day and remain so for at least the rest of the calendar
year and for the following calendar year.
Example:
Elm Inc. started its business on April 1, 2001. On April 16, it
paid wages for the first time and accumulated a tax liability of
$40,000. On April 23, Elm Inc. paid wages and accumulated a liability
of $60,000, bringing its accumulated tax liability to $100,000.
Because this was the first year of its business, the tax liability for
its lookback period is considered to be zero, and it would be a
monthly schedule depositor based on the lookback rules. However, since
Elm Inc. accumulated a $100,000 liability on April 23, it became a
semiweekly schedule depositor on April 24. It will be a semiweekly
schedule depositor for the remainder of 2001 and for 2002. Elm Inc. is
required to deposit the $100,000 by April 24, the next banking day.
Accuracy of Deposits Rule
You are required to deposit 100% of your tax liability on or before
the deposit due date. However, penalties will not be applied for
depositing less than 100% if both of the following
conditions are met:
- Any deposit shortfall does not exceed the greater of $100 or
2% of the amount of taxes otherwise required to be deposited
and
- The deposit shortfall is paid or deposited by the shortfall
makeup date as described below.
Makeup Date for Deposit Shortfall:
- Monthly schedule depositor. Deposit the shortfall
or pay it with your return by the due date of the Form 941 for the
quarter in which the shortfall occurred. You may pay the shortfall
with Form 941 even if the amount is $2,500 or more.
- Semiweekly schedule depositor. Deposit by the
earlier of:
- The first Wednesday or Friday that falls on or after the
15th of the month following the month in which the shortfall occurred
or
- The due date of Form 941 (for the quarter of the tax
liability).
For example, if a semiweekly schedule depositor has a deposit
shortfall during February 2001, the shortfall makeup date is March 16,
2001 (Friday). However, if the shortfall occurred on the required
April 4 (Wednesday) deposit due date for a March 28 (Wednesday) pay
date, the return due date for the March 28 pay date (April 30) would
come before the May 16 (Wednesday) shortfall makeup date. In this
case, the shortfall must be deposited by April 30.
How To Deposit
The two methods of depositing employment taxes, including Form 945
taxes, are discussed below. See page 17 for exceptions explaining when
taxes may be paid with the tax return instead of deposited.
Electronic deposit requirement.
You must make electronic deposits of all depository taxes (such as
employment tax, excise tax, and corporate income tax) using the
Electronic Federal Tax Payment System (EFTPS) in 2001 if:
- The total deposits of such taxes in 1999 was more than
$200,000 or
- You were required to use EFTPS in 2000.
If you are required to use EFTPS and fail to do so, you may be
subject to a 10% penalty. If you are not required to use EFTPS, you
may participate voluntarily. To get more information or to enroll in
EFTPS, call 1-800-555-4477 or 1-800-945-8400.
Depositing on time.
For deposits made by EFTPS to be on time, you must initiate the
transaction at least one business day before the date the deposit is
due.
Making deposits with FTD coupons.
If you are not making deposits by EFTPS, use Form 8109,
Federal Tax Deposit Coupon, to make
the deposits at an authorized financial institution.
For new employers, the IRS will send you a Federal Tax Deposit
(FTD) coupon book 5 to 6 weeks after you receive an employer
identification number (EIN). (Apply for an EIN on Form SS-4.) The IRS
will keep track of the number of FTD coupons you use and
automatically will send you additional coupons when you
need them. If you do not receive your resupply of FTD coupons, call
1-800-829-1040. You can have the FTD coupon books sent to a branch
office, tax preparer, or service bureau that is making your deposits
by showing that address on Form 8109-C, FTD Address Change,
which is in the FTD coupon book. (Filing Form 8109-C will not change
your address of record; it will change only the address where the FTD
coupons are mailed.) The FTD coupons will be preprinted with your
name, address, and EIN. They have entry boxes for indicating the type
of tax and the tax period for which the deposit is made.
It is very important to clearly mark the correct type of tax and
tax period on each FTD coupon. This information is used by the IRS to
credit your account.
If you have branch offices depositing taxes, give them FTD coupons
and complete instructions so they can deposit the taxes when due.
Please use only your FTD coupons. If you use anyone else's FTD
coupon, you may be subject to the failure to deposit penalty. This is
because your account will be underpaid by the amount of the deposit
credited to the other person's account. See Deposit Penalties
on page 21 for details.
How to deposit with an FTD coupon.
Mail or deliver each FTD coupon and a single payment covering the
taxes to be deposited to an authorized depositary. An authorized
depositary is a financial institution (e.g., a commercial bank) that
is authorized to accept Federal tax deposits. Follow the instructions
in the FTD coupon book. Make the check or money order payable to the
depositary. To help ensure proper crediting of your account, include
your EIN, the type of tax (e.g., Form 941), and tax period to which
the payment applies on your check or money order.
Authorized depositaries must accept cash, a postal money order
drawn to the order of the depositary, or a check or draft drawn on and
to the order of the depositary. You may deposit taxes with a check
drawn on another financial institution only if the depositary is
willing to accept that form of payment.
Note:
Be sure that the financial institution where you make deposits
is an authorized depositary. Deposits made at an unauthorized
institution may be subject to the failure to deposit penalty.
Depositing on time.
The IRS determines whether deposits are on time by the date they
are received by an authorized depositary. To be considered timely, the
funds must be available to the depositary on the deposit due date
before the institution's daily cutoff deadline. Contact your local
depositary for information concerning check clearance and cutoff
schedules. However, a deposit received by the authorized depositary
after the due date will be considered timely if the taxpayer
establishes that it was mailed in the United States at least 2 days
before the due date.
Note:
If you are required to deposit any taxes more than once a
month, any deposit of $20,000 or more must be made by its due date to
be timely.
Depositing without an EIN.
If you have applied for an EIN but have not received it,
and you must make a deposit, make the deposit with the IRS. Do
not make the deposit at an authorized depositary. Make it
payable to the "United States Treasury" and show on it your name
(as shown on Form SS-4), address, kind of tax, period covered, and
date you applied for an EIN. Send an explanation with the deposit.
Do not use Form 8109-B, Federal Tax Deposit
Coupon, in this situation.
Depositing without Form 8109.
If you do not have the preprinted Form 8109, you may use Form
8109-B to make deposits. Form 8109-B is an over-the-counter FTD coupon
that is not preprinted with your identifying information. You may get
this form by calling 1-800-829-1040. Be sure to have your EIN ready
when you call.
Use Form 8109-B to make deposits only if--
- You are a new employer and you have been assigned an EIN,
but you have not received your initial supply of Forms 8109 or
- You have not received your resupply of preprinted Forms
8109.
Deposit record.
For your records, a stub is provided with each FTD coupon in the
coupon book. The FTD coupon itself will not be returned. It is used to
credit your account. Your check, bank receipt, or money order is your
receipt.
How to claim credit for overpayments.
If you deposited more than the right amount of taxes for a quarter,
you can choose on Form 941 for that quarter to have the overpayment
refunded or applied as a credit to your next return. Do not ask the
depositary or EFTPS to request a refund from the IRS for you.
Deposit Penalties
Penalties may apply if you do not make required deposits on time,
make deposits for less than the required amount, or if you do not use
EFTPS when required. The penalties do not apply if any failure to make
a proper and timely deposit was due to reasonable cause and not to
willful neglect. For amounts not properly or timely deposited, the
penalty rates are:
2% |
- |
Deposits made 1 to 5 days late. |
5% |
- |
Deposits made 6 to 15 days late. |
10% |
- |
Deposits made 16 or more days late. Also applies to
amounts paid within 10 days of the date of the first notice the IRS
sent asking for the tax due. |
10% |
- |
Deposits made at an unauthorized financial institution,
paid directly to the IRS, or paid with your tax return (but see
Depositing without an EIN above and Payment with
return earlier for exceptions). |
10% |
- |
Amounts subject to electronic deposit requirements but
not deposited using EFTPS. |
15% |
- |
Amounts still unpaid more than 10 days after the date
of the first notice the IRS sent asking for the tax due or the day on
which you receive notice and demand for immediate payment, whichever
is earlier. |
Order in which deposits are applied.
Generally, tax deposits are applied first to any past due
undeposited amount within the same return period, with the oldest
liability satisfied first. However, you may designate the period to
which a deposit applies if you receive a penalty notice. You must
respond within 90 days of the date of the notice. Follow the
instructions on the notice you receive. For more information, see
Revenue Procedure 99-10 (1999-1 C.B. 324).
Example:
Cedar Inc. is required to make a deposit of $1,000 on February 15
and $1,500 on March 15. It does not make the deposit on February 15.
On March 15, Cedar Inc. deposits $1,700 assuming that it has paid its
March deposit in full and applied $200 to the late February deposit.
However, because deposits are applied first to past due underdeposits
in due date order, $1,000 of the March 15 deposit is applied to the
late February deposit. The remaining $700 is applied to the March 15
deposit. Therefore, in addition to an underdeposit of $1,000 for
February 15, Cedar Inc. has an underdeposit for March 15 of $800.
Penalties will be applied to both underdeposits as explained above.
However, Cedar Inc. may contact the IRS within 90 days of the date of
the notice to request that the deposits be applied differently.
Trust fund recovery penalty.
If income, social security, and Medicare taxes that must be
withheld are not withheld or are not deposited or paid to the United
States Treasury, the trust fund recovery penalty may apply. The
penalty is the full amount of the unpaid trust fund tax. This penalty
may apply to you if these unpaid taxes cannot be immediately collected
from the employer or business.
The trust fund recovery penalty may be imposed on all persons who
are determined by the IRS to be responsible for collecting,
accounting for, and paying over these taxes, and who acted
willfully in not doing so.
A responsible person can be an officer or employee of a
corporation, a partner or employee of a partnership, an accountant, a
volunteer director/trustee, or an employee of a sole proprietorship. A
responsible person also may include one who signs checks for the
business or otherwise has authority to cause the spending of business
funds.
Willfully means voluntarily, consciously, and
intentionally. A responsible person acts willfully if the person knows
the required actions are not taking place.
Separate accounting when deposits are not made or withheld
taxes are not paid.
Separate accounting may be required if you do not pay over withheld
employee social security, Medicare, or income taxes; deposit required
taxes; make required payments; or file tax returns. In this case, you
would receive written notice from the IRS requiring you to deposit
taxes in a special trust account for the U.S. Government. You would
also have to file monthly tax returns on Form 941-M,
Employer's Monthly Federal Tax Return.
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