How to deposit employment taxes
April 20, 2000 -- According to a 1998
study conducted for the Small Business Administration, one in
every five businesses filing bankruptcy identifies trouble with
the IRS as the source of its predicament.
How do businesses get themselves
in this jam? Many new business owners who hire employees find themselves
torn between wrestling with deposit taxes and postponing this task
until the business gets under way. Succumbing to strategy No. 2
has proven to be the recipe to disaster for many a budding entrepreneur.
In general, any business that hires an employee
is required to make certain tax deposits. These include any income
tax withheld, Medicare taxes, and the employer's and employee's
share of Social Security. Traditionally, mailing or delivering their
payments to an authorized financial institution or Federal Reserve
Bank has taken care of this.
Deposits are made either by the Electronic Federal
Tax Payment System, if required, or by using a Form 8109, Federal
Tax Deposit Coupon, which must accompany your payment.
The Form 8109 should have arrived with your
coupon book that came after you acquired an Employer Identification
Number. If you have a deposit due and there is not enough time to
obtain a coupon book, you can get a blank coupon (Form 8109-B) by
Certain business owners must electronically
deposit those payments. The law requires electronic deposits
from business owners whose total deposits, including deposits for
employment tax, excise tax and corporate income tax for 1998 exceeded
$200,000. If you are interested in using the electronic system,
you must enroll in the program first. Obtain an enrollment form
or get additional information by calling the system's customer service
toll-free at 1-800-945-8400 or 1-800-555-4477.
Knowing whether deposit taxes are required or supposed to be deposited
electronically isn't enough to stay out of trouble. You also have
to make sure those deposits are made on time. And being timely has
nothing to do with how often you pay your employees or make deposits.
Your schedule depends on the total tax liability you reported on
941 -- the employer's quarterly federal tax return -- during
a four-quarter lookback period, a period that begins July 1 and
ends June 30 as shown in Table
Anyone who reported $50,000 or less of taxes
for the lookback period is a monthly schedule depositor. Anyone
who reported more than $50,000 will have to make those deposits
And there is one other thing for electronic
depositors to keep in mind. For these deposits to be on time, the
transaction should be made at least one business day before the
date the deposit is due.
or semiweekly deposits
Under the monthly deposit schedule, deposit Form 941 taxes on payments
made during a month by the 15th day of the following month. Don't
file Form 941 every month, though. Also, the IRS advises not filing
Form 941-M, Employer's Monthly Federal Tax Return, unless
an IRS representative requests it.
What about new employers? After all, at least
during the first calendar year of your business, your tax liability
for each quarter in the lookback period is going to be zero. Generally,
this means you will be a monthly schedule depositor for the first
calendar year of your business. But you still have to follow the
$100,000 Next-Day Deposit Rule.
What is this rule? It applies any time an employer
incurs a tax liability of $100,000 or more on any day during a deposit
period. The IRS requires someone in this situation to deposit the
tax by the next banking day. It doesn't matter whether the taxpayer
is a monthly or semiweekly schedule depositor.
What about the semiweekly depositors out there?
Under the semiweekly 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.
For more information, consult IRS
Publication 15: Employer's Tax Guide and Form
941 deposit instructions.
-- Posted April 20, 2000