Payroll Taxes
General Information:
Tax deposits. Some taxes can be paid
with the return on which they are reported. However, in many cases, you have to
deposit the tax before the due date for filing the return. Tax deposits are
figured for periods of time that are shorter than the time period covered by
the return. See Publication 15 for the employment tax deposit rules. For the
excise tax deposit rules, see Publication 510 or the instructions for Form 720.
Deposits must be made
at an authorized financial institution. A deposit received after the due date
will be considered timely if you can establish that it was mailed in the United States at least 2 days
before the due date. However, deposits of $20,000 or more by a person required
to deposit the tax more than once a month must be received by the due date to
be timely.
Tax deposit
coupons. Each deposit must be accompanied by a federal tax deposit
(FTD) coupon, Form 8109, unless you are using the Electronic Federal Tax
Payment System (EFTPS). The coupons have spaces for indicating the type of tax
you are depositing. You must use a separate coupon for each type of tax. For
example, if you are depositing both excise taxes and federal unemployment
taxes, you must use two coupons. You can get the coupons you need by calling
1–800–829–4933.
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 2004 if you deposited
more than $200,000 in federal depository taxes in 2002 or you had to make
electronic deposits in 2003. If you first meet the $200,000 threshold in 2003,
you must
begin depositing using
EFTPS in 2005. Once you meet the $200,000 threshold, you must continue to make
deposits using EFTPS in later years.
If you must use EFTPS
but fail to do so, you may be subject to a 10% penalty. If you are not required
to use EFTPS because you did not meet the $200,000 threshold during 1998, or
during any subsequent year, then you may voluntarily make your 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.
·
When To Deposit
There are two deposit
schedules - monthly or semi-weekly- 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. 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 after you pay your employees or make deposits.
There are two deposit schedules—monthly or
semi- weekly—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
that you are required to use. The deposit schedule that you must use is based
on the total tax liability that 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.
Lookback
period. Your
deposit schedule for a calendar year is determined from the total taxes (i.e.,
not reduced by any advance EIC payments) reported on line 11 of your period
begins July 1 and ends June 30.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.
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 of the lookback rule.
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.
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 scheduled depositor for the first calendar year of your business
(but see the $100,000 Next-Day Deposit Rule).
Semiweekly
Deposit Schedule
You
are a semiweekly depositor for a calendar year if the total taxes on Form 941
(line 11) during your lookback period was 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.
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 payroll deposit dates refer
back to our Tax Calendar.
·
How To Deposit
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 2003 if:
·
The total
deposits of such taxes in 2001 were more than $200,000 or
·
You were required
to use EFTPS in 2002.
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 EFTPS, you may participate voluntarily. To
get more information or to enroll in EFTPS, call 1-800-555-4477 or 1-800
945-8400. You can also visit the EFTPS Web Site at www.eftps.com.
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 intuition.
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 1-800-829-4933.
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 depository. An
authorized depository 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 depository. To
help ensure proper crediting of your account, include your EIN, the type of
tax, and tax period to which the payment applies on your check or money order.
Depositing on time.
The IRS determines weather deposits are on time by the date they
received by the authorized depository. To be considered timely, the funds must
be available to the depositor on the deposit due date before the institution’s
daily cutoff deadline. Contact your local depository for information concerning
check clearance and cutoff schedules.
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.
Deposit
Penalties:
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 take return.
Order in which deposits area applied. Deposits
generally are applied to the most recent tax liability within the quarter. If
you receive a failure to deposit notice, you may designate how you payment is
to be applied in order to minimize the amount of penalty.
Example: Cedar Inc. is required to make a
deposit of $1,000 on April 15 and $1,500 on May 15. It does not make the
deposit on April 15. On May 15, Cedar Inc. deposits $2,000. Under the deposits
rule, which applies deposits to the most recent tax liability, $1,500 of the
deposit is applied to the May 15 deposit and the remaining $500 of the April 15
liability remains undeposited. The penalty on this underdeposit will apply as
explained above.
·
Federal Unemployment (FUTA) Tax
For 2002 and 2003, the FUTA tax rate is 6.2%.
Depositing FUTA tax. For deposit purposes,
figure FUTA tax quarterly. Determine your FUTA tax liability by multiplying the
amount of wages paid during the quarter by .008 (0.8%). Stop depositing FUTA
tax on an employee’s wages when he or she reaches $7,000 in wages for the
calendar year. If any part of the wages subject to FUTA are exempt from state
unemployment tax, you may have to deposit more than the tax using the 0.8%
rate.
If your FUTA tax liability for a quarter is $100 or
less, you do not have to deposit the tax. Instead, you may carry it forward and
add it to the liability figured in the next quarter to see if you must make a
deposit. If your FUTA tax liability for any calendar quarter in 2003 is over
$100 (including and FUTA tax carried forward from an earlier quarter), you must
deposit the tax by electronic funds transfer (EFTPS) or in an authorized
financial institution using Form 8109, Federal Tax Deposit
Coupon.
·
Family Employees
Child employed by parents. Payments for the
services of a child under age 18 who works for his or her parent in a trade or
business are not subject to social security and Medicare taxes if the trade or
business is a sole proprietorship or a partnership in which each partner is a
parent of the child. If these services are for work other than in a trade or
business, such as domestic work in the parent’s private home, they are not
subject to social security and Medicare taxes until the child reaches age 21.
Payments for other services of a child under age 21 who works for his or her
parent whether or not in a trade or business are not subject to Federal
unemployment (FUTA) tax.
One spouse employed by another. The wages for
the services of the individual who works for his or her spouse in a trade or
business are subject to income tax withholding and social security and Medicare
taxes, but not to FUTA tax. However the services of one spouse employed by
another in other than trade of business, such as domestic service in a private
home, are not subject to social security, Medicare, and FUTA taxes.
Covered Services of a child or spouse. The wages
for the services of a child or spouse are subject to income tax withholding as
well as social security, Medicare, and FUTA taxes if he or she works for:
1)
A corporation, even if it is controlled by the child’s
parent or the individual’s spouse,
2)
A partnership, even if the child’s parent is a partner,
unless each partner is a parent of the child, or
3)
A partnership, even if the individual’s spouse is a
partner.
