Home
About Us
Business Services
Individual Services
Financial & Investment Review
Individual Tax Planning
Business Tax Planning
Tax Calendar
Business Start-Ups
Useful Info
About Our Clients
Web Resources
Employee Fringe Benefits
Track Your Refund
Real Estate & Mortgages
Privacy Policy & Disclaimer
Contact Us
 

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.