You must withhold income, social security, and Medicare taxes required to be withheld from the salaries and wages of your employees. You are liable for the payment of these taxes to the federal government whether or not you collect them from your employees. If, for example, you withhold less than the correct tax from an employee's wages, you are still liable for the full amount. You must also pay the employer's share of social security and Medicare taxes.

Form 943. Report withheld income tax and social security and Medicare taxes on Form 943. The 2001 form is due by January 31, 2002 (or February 11 if the taxes were timely deposited in full).

Deposits. You will generally have to make periodic tax deposits if you are liable for $2,500 or more of social security and Medicare taxes and withheld income tax during the year.

For more information on deposit rules, see Circular A.

Electronic Federal Tax Payment System (EFTPS). You may have to deposit taxes using EFTPS. You must use EFTPS to make deposits of all depository tax liabilities (including social security, Medicare, withheld income, excise, and corporate income taxes) you incur in 2002 if you deposited more than $200,000 in federal depository taxes in 2000. If you first meet the $200,000 threshold in 2001, you must begin depositing using EFTPS in 2003. Once you meet the $200,000 threshold, you must continue to make deposits using EFTPS in later years even if subsequent deposits are less than the $200,000 threshold.

If you must use EFTPS but fail to do so, you may be subject to a 10% penalty.

If you do not have to use EFTPS because you did not meet the $200,000 threshold, you can voluntarily make deposits using EFTPS. If you are using EFTPS voluntarily, you will not be subject to the 10% penalty if you make a deposit using a paper coupon.

For information about EFTPS, access the IRS web site on the Internet at www.eftps.gov, or see Publication 966, Now a Full Range of Electronic Choices to Pay ALL Your Federal Taxes.

To enroll in EFTPS, call one of the following phone numbers.

• 1-800-945-8400
• 1-800-555-4477

Form W-2. By January 31, you must furnish each employee a Form W-2 showing total wages for the previous year and total income tax and social security and Medicare taxes withheld. However, if an employee stops working for you and requests the form earlier, you must give it to the employee within 30 days of the later of the following dates.

• The date the employee requests the form.
• The date you make your final payment of wages to the employee.

See Form W-2 under Information Returns in chapter 2.

Trust fund recovery penalty. If you are responsible for withholding, accounting for, depositing, or paying withholding taxes and willfully fail to do so, you can be held liable for a penalty equal to the tax not paid. A responsible person can be an officer of a corporation, a partner, a sole proprietor, or an employee of any form of business. A trustee or agent with authority over the funds of the business can also be held responsible for the penalty.

"Willfully" means voluntarily, consciously, and intentionally. Paying other expenses of the business instead of the taxes due is acting willfully.

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