Payroll Tax Deposits

What You'll Find In This Chat ...

Let's chat about good bookkeeping practices.
  • Tip Form 4070 - Tip
  • Notice 4520
  • Forms 940, 941, 944, 941X
  • IRS Payroll Remitter Type
  • FUTA Credit Reduction Rates

One of the administrative tasks a work from business owner must attend to if they have employees ... or are self-employed are federal and state payroll tax obligations. I'll walk you through seven steps needed to meet your requirements.

I also hope you leave with a firm understanding of the difference between the deposit requirements and reporting requirements.


INDEX for Federal Payroll Taxes Series
Click on any image below to go to the article.

Part 1

Social Security Rates

Employee Payroll Taxes

✔ FICA & FUTA Rates

✔ Business Travel Allowances

✔ and more

Part 2

Payroll Tax Deposits

✔ Payroll Tax Deposits

✔ Forms 940 & 941

✔ Correcting Form 941

✔ Notice 4520

✔ FUTA Credit Reductions

Part 3

W-2 W-3 W-4 Forms

✔ Employment Forms

✔ W2, W3, W4

✔ Form 1-9

✔ New Hire Paperwork

Part 4

Independent contractor rules

✔ Independent Contractor Rules

✔ Forms W9, 1096, 945, 1099-MISC

✔ VCSP


Small business owners are required to meet the payroll tax deposits obligations I have laid out below. In this chat, I'll walk you through each obligation.

Payroll tax deposit requirement schedule
Information on payroll tax deposits and reporting requirements.
  1. Withhold mandatory payroll deductions (federal income tax, social security tax and medicare tax) from an employee's wage;
  2. Kick in an employer's portion of the social security and medicare taxes as well as bear 100% of the unemployment taxes;
  3. Determine your remitter type for FICA & FITW;
  4. Determine your credit reduction rate for FUTA/SUTA;
  5. Remit the mandatory payroll tax deposits for FITW, FICA and FUTA by prescribed dates;
  6. Submit quarterly and/or annual employer federal tax return reporting number of employees, gross wages, employee tips received, payroll deductions taken and payroll tax deposited. It calculates any amounts due or overpaid to the IRS; and

GOOD TO KNOW

Over and above your federal tax obligations, each state also has their own requirements.  Determine your state and local taxes obligations on the U.S. Small Business Administration website.

7. Submit annual employer federal unemployment tax return reporting SUTA, total FUTA payments due and deposited. It calculates any additional amounts due or overpaid.


The following acronyms are referred to in this article. I know it sounds like a foreign language but this should help you sort it out:

FICA = Federal Insurance Contributions Act which established Social Security tax and Medicare tax.

SICA = Self-Employment Insurance Contributions which is both portions (employer and employee) of FICA

FITW = Federal Income Tax Withholding where the amount withheld is determined by employee's current W-4 Form - Withholding Certificate on file with you.

FUTA = Federal Unemployment Tax Act administers the federal government's unemployment program.

SUTA = State Unemployment Tax Acts administers the federal government's unemployment programs.

EPTS = Electronic Federal Tax Payment System; see Publication 966 The Secure Way to Pay Your Federal Taxes; Business users can schedule payments up to 120 days in advance of the desired payment date;  The Treasury no longer maintains the Federal Tax Deposit Coupon (form 8109) system. It was discontinued on December 31, 2010 but it seems like just yesterday; (Reference: IR-2010-02)


Tax Deposits vs. Tax Reporting Overview

Tax deposit (you make a payment to IRS) deadline dates are:

  • FICA & FITW - Semi Weekly (Wednesdays & Fridays), Monthly (L.T. $50,000) or Annually (L.T. $2,500 / quarter)
  • FUTA - January 31, April 30, July 31, October 31

Tax reporting (you file your tax employer tax returns) deadline dates are:

  • Quarterly for Form 941
  • Annually for Forms 940 & 944

Keep reading this chat for more details.





Step 1 & 2: Mandatory Payroll Taxes

Steps one and two on mandatory employee withholdings and employer contributions are covered in my chat on Employee Payroll Taxes. Click here for your 2016 payroll tax deposit rates ... as well as prior year payroll tax deposit rates.

The self-employed don't get away scot free ... sorry! You get to pay both the employee and employer portions of FICA ... and you must ... as in have to ... submit quarterly income tax payments based on estimates. See my chat on Self Employment Income for more information.

Look for the payroll bookkeeping entries relating to payroll deductions and payroll tax deposits ... if you are unsure how it works or what your bookkeeping software program is recording.


Step 3. Determine Your Remitter Type

Once you've determined your remitter type, click here for your current month payroll tax deposit remitting dates ... your mandatory obligations.

Payroll Tax Deposits
FICA and FITW

The employer supplements the employee FICA contributions.

Source: IRS Publication i941 Instructions for Form 941 - Employer’s QUARTERLY Federal Tax Return and IRS Publication 15 Circular E Employer's Tax Guide


Click here for an overview of the 2017 deposit rules for employment taxes.

IRS determines your remitter type by the payroll liability lookback amount. New businesses start out using the Monthly Deposit rules.


Lookback Period Tax Amounts Assigned Reporting Period Form 941 Filing Deadline Form 8109
Payment Deadline
L.T. $2,500 per quarter
(see note 1)
Quarterly One month after quarter endsSame as filing deadline
January 31, April 30, July 31, November 30
L.T. $50,000 per year (see note 2) Monthly One month after quarter ends15th following each month
G.T. $50,000 per year in prior
2 years
Semi-WeeklyOne month after quarter endsWednesdays (Thursdays if holiday), Fridays

Note 1 You are not required to make monthly or semiweekly deposits if you have an accumulating tax liability of less than $2,500 during the current or preceding quarter for Form 941 (during a calendar year for Form 944 or 945), and

... your taxes are paid in full with a timely filed return, and

... you did not incur a $100,000 next-day deposit obligation during the current quarter.

Note 2 ... and more than $2,500 for the current quarter and the preceding quarter lookback period and you did not incur a $100,000 next-day deposit obligation during the current quarter.


New Businesses, New Employers

New employers' tax liability are set at zero by the IRS. This means if you are a new employer, you will be a monthly depositor for the first year of business.


$100,000 Next Day Deposit Rule

You must deposit the tax by the next banking day if you have an accumulating tax liability of $100,000 or more on any day during a deposit period ... regardless of whether you are a monthly or semiweekly depositor.

The Lookback Period

The 2017 lookback period for Form 941 is July 1, 2015 to June 30, 2016.

The 2016 lookback period for Form 941 is July 1, 2014 to June 30, 2015.

The 2015 lookback period for Form 941 is July 1, 2013 to June 30, 2014.


Adjustments and The Lookback Period

The lookback period is based on the tax liability as originally reported.

If you subsequently correct errors on or make adjustments to the original return by filing Form 941-X, 944-X, or 945-X, the corrections are NOT taken into consideration for purposes of the lookback period computation.


Annual Filers' Lookback Period

The lookback period is the calendar year preceding the previous year for annual return filers (Form 944 or 945) .

The lookback period for 2017 tax deposits is the 2015 tax year.

The lookback period for 2016 tax deposits is the 2014 tax year.

The lookback period for 2015 tax deposits is the 2013 tax year.



Step 4. Determine Your Credit Reduction Rate

Click here for current FUTA Rates.


Payroll Tax Deposits - FUTA and SUTA
Experience Rating and Credit Reduction

The employer bears 100% of the cost of FUTA and SUTA program contributions

Source: IRS Publication i940 Instructions for Form 940 - Employer's Annual Federal Unemployment (FUTA) Tax Return

The Federal Unemployment Tax Act (FUTA) and State Unemployment Tax Acts (SUTA) are used to administer government unemployment programs. Unlike FICA where the employer supplements the employee contribution, the employer bears 100% of the cost of FUTA and SUTA* program contributions.

*Three states ... Alaska, New Jersey, and Pennsylvania ... assess SUTA on employees as well. In all other states, the employer bears the full burden of unemployment taxes.

Unemployment taxes are calculated and deposited (paid) quarterly.

FUTA is reported and filed annually on form 940 or 940-EZ on or before January 31. The taxable wage base is $7,000 per employee per quarter.

SUTA rates are based on experience ratings. The more frequently your business lays off staff, the higher your SUTA rate. New businesses are assigned an initial industry based rate. Rates are adjusted annually.


FUTA Credit Reduction States and Rates

Updated January 4, 2016

Since 2011, you must include liabilities owed for credit reduction with your fourth quarter deposit. Use IRS Specific Instructions of Schedule A (Form 940) to calculate the tax. Schedule A includes a column for the reduction rate for each state.

You can find a list of FUTA credit reductions on the DOL site. It has gone from 24 states in 2011 to 2 states in 2016 - California and Virgin Islands. The files are in Excel format and must downloaded.

Background Information

Toolkit writer Robert Steere explains in Unemployment Taxes Will Rise in 2010 "you are unfortunate to live in a state that borrowed from FUA (Federal Unemployment Account) but has not paid back FUA "in a timely fashion".

This means employers in these states will end up paying increased FUTA as the federal tax credit will be reduced by 0.3% for each year they are behind.

Michigan began losing their federal tax credit in 2009 so the minimum FUTA was 1.1% not 0.8%. Their net FUTA jumped to 1.4% in 2010, 1.7% for the first half of 2010, and 1.5% for the second half of 2010.

Look for the two states affected in 2016 on Schedule A of Form 940 which will be released sometime in early December, 2016.


Payroll tax deposit deadline

Step 5. Remit Payroll Taxes

Payroll Tax Deposit - FICA & FITW
December, 2016 Remitting Dates

Attention EPTPS users, you must schedule your payment by 8 p.m. ET at least one calendar day before the tax due date.


Payroll Tax Deposit Source: IRS Publication 15 Circular E -  Employer's Tax Guide and IRS; Publication i941 Instructions for Form 941 - Employer’s QUARTERLY Federal Tax Return

Deposit Deadline Tax Type Tax Period Form to be Filed
Dec 10 Report Tips to Employer Nov Monthly Form 4070*
Dec 17 Payroll
Monthly
(L.T. $50,000)
Nov EFTPS

Payroll Tax Deposit Deadline Footnotes

EFPTS payments must be schedulate by 8 p.m. ET at least one calendar BEFORE the tax due date.

Semi-weekly deposits are required for over $50,000. They are due on:

  • Wednesdays after the payday for Wednesday through Friday paydays; and
  • Fridays following for Saturday through Tuesday paydays.

See the IRS Tax Calendar as a handy reference.

In the week there is a federal (not state) public holiday, your Wednesday deposit date is delayed until the next business day.



Payroll Tax Deposit - FUTA
2013/2014 Remitting Dates

Payroll Tax Deposit Source: IRS Publication 15 Circular E -  Employer's Tax Guide

Deposit Deadline* Week Day Payment Return To Be Filed** Tax Period
October 31, 2016 Monday EFTPS
FUTA
Annual Form 940 3rd quarter 2016
January 31, 2017
Feb. 10 if you timely deposited
Tuesday EFTPS
FUTA
Annual Form 940 4th quarter 2016
May 1, 2017 Monday EFTPS
FUTA
Annual Form 940 1st quarter 2017
July 31, 2017 Monday EFTPS
FUTA
Annual Form 940 2nd quarter 2017

FUTA Footnotes

Note 1* - If more than $500 due / owing.

Note 2** Find your annual reporting deadline here.


6. Submit Employer Federal Tax Returns

Payroll Tax Returns - FICA & FITW
Reporting/Filing Dates

Form 4070 - Employee's Monthly Report of Tips to Employer

Form 941* - Employer's Quarterly Federal Tax Return

Form 944* - Employer's Annual Federal Tax Return

*You file either Form 941 quarterly OR Form 944 as notified by the IRS, not both.

Filing Deadline Week Day Filing Deadline
If All Deposits Made On Time
Return To Be Filed Tax Period
10th of each month, 2016 varies Report Tips to Employer Monthly Form 4070* Previous Month
January 31, 2017 Tuesday February 10, 2017 Quarterly Form 941 4th quarter 2015
January 31, 2017 Tuesday February 10, 2017 Annual Form 944 Jan-Dec 2016
May 1, 2017 Monday May 10, 2017 Quarterly Form 941 1st quarter 2017
July 31,2017 Monday August 10, 2017 Quarterly Form 941 2nd quarter 2017
October 31, 2017 Tuesday November 10, 2017 Quarterly Form 941 3rd quarter 2017

Payroll Tax Deposit Deadline Footnotes

Note * - Employees who earn $20 or more in tips during a month must report them to their employer. Employees who do NOT report their tips to their employers will report them on Form 4137. Since 2011, this results in the employer receiving Notice 4520 from the IRS (see below) requesting payment of their share of FICA taxes on unreported tips.


GOOD TO KNOW

Collecting Employer Taxes On Tips

Rev. Rul. 2012-18 , IRB 2012-26 released on June 25, 2012 provides clarification and updates the guidelines. Type in "unreported tips" in the find box of your browser when you have the bulletin open ... and you will find all the Q&A that relate to unreported tips.

Q&A-1 explains how to determine whether an amount is classified as a tip or a service charge.

IRS Announcement 2012-50 extends the implementation of this ruling to 2014. For plain English interpretation of the announcement, see the JOA article "Rules distinguishing tips from service charges delayed until 2014" published on December 13, 2012.

Back on September 29, 2010 the IRS is offered a live webinar on Collecting Employer Taxes On Tips.

The purpose of the webinar was to assist employer's with learning about "collecting the employer's share of employment taxes on tips that employees report on Form 4137 Social Security and Medicare Tax On Unreported Tip Income".

You can view an archived copy the event at:

http://www.irsvideos.gov/CollectingEmployerTaxesTips/ .


The October 1, 2010 edition of the CPA Daily News reported on the webinar. A quick overview is presented here.

Employers are not liable for its share of the FICA taxes on unreported tips until it receives a “Section 3121(q) Notice and Demand” from the IRS.

This notice instructs the employer to include the FICA taxes shown on the notice their next Form 941 - Employer's Quarterly Federal Tax Return. No interest charges or deposit penalties apply to the employer if the taxes are properly reported and any tax due remitted as instructed ... or if a required deposit is made as instructed on the notice.

FICA taxes on unreported tips notices are expected to begin in the next six months for current tax periods. The CPA Daily News reported that "Employers will receive a Form 4520P “pre-notice” prior to receiving a notice (Form 4520) that requires them to pay the unreported FICA tax. The pre-notice will be issued well in advance of the Form 4520 notice to give employers time to review their records and contact the IRS if they find any discrepancies with IRS records ... "

The IRS has a web page specifically devoted to tips. Tax Topic 761 - Tips - Withholding and Reporting is found on the IRS website under Tax Topics> Topic 761.


7. Submit Annual Unemployment Return

Payroll Tax Return - FUTA
Reporting/Filing Dates

Form 940 - Employer's Annual Federal Unemployment Tax Return

Make sure you are using the form for the right year as the credit reduction information is updated annually by state.

Please note that unemployment taxes are calculated and paid (deposited) quarterly. Find your remitting deadlines here.

Filing Deadline Week Day Filing Deadline
If All Deposits Made On Time
Return To Be Filed Tax Period
January 31, 2017 Monday February 10, 2017 Annual Form 940 2016


There are seven steps to meeting your federal and state payroll tax deposits requirements. Make sure you follow each one to keep your business running smoothly.


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