IRS Simplifies Employers' Tax Deposit Rules

WASHINGTON - Five million employers will find it easier to know when to deposit the taxes withheld from employees' salaries under new regulations proposed by the Internal Revenue Service. As proposed, the new rules will take effect January 1, 1993.

Presently, the deposit requirements can change from month to month, depending upon the amount of taxes accumulated. Many employers must deposit about twice a week on days set by dividing the month into eight parts -- a confusing increment which is not a standard timeframe for anyone. Under new rules, employers usually will know at the start of a calendar quarter what their deposit deadlines will be throughout the three-month period.

The key to this burden and penalty reduction is a new "look back" rule which puts most employers on a standard deposit cycle for the entire quarter. Employers will look back to their employment tax liabilities during a twelve-month base period ending with the second preceding calendar quarter. For example, the rule for the April-June quarter will be set by the taxes for the preceding January-December period.

Employers whose accumulated taxes were never over $12,000 in any base period quarter will deposit each month's taxes by the 15th of the following month.

Employers who accrued over $12,000 in taxes in any base period quarter will deposit on Tuesdays and/or Fridays. For paydays falling on Wednesday, Thursday or Friday, the deposit day is the following Tuesday. Otherwise, its the Friday after payday. Employers who have only one payday a week would therefore deposit taxes only once a week.

Two exceptions carry over from the present rules. If accumulated taxes reach $100,000, the employer must make the deposit by the next banking day, as under the present rules. An employer who accrues less than $500 in taxes during the quarter may skip deposits and send the full payment with the quarterly employment tax return.

The regulations, which will be published in the Federal Register on May 18, 1992, contain special rules for holidays, as well as "safe harbors" to avoid penalties when deposits fall short of the required amounts.

The IRS plans to finalize the proposed regulations later this year, giving employers ample time to implement them. Comments are being accepted until July 20, 1992, with a public hearing scheduled for August 3, 1992. Comments and requests to speak at the hearing may be sent to IRS, Attn: CC:CORP:T:R (IA-28-91), P.O. Box 7604, Ben Franklin Station, Washington DC 20244.

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