Payroll Tax Deposits

7 Steps To Meet Your Obligations

Published November 2012 | Updated January 6, 2026

WHAT'S IN THIS ARTICLE
Tip Form 4070 - Tip | Notice 4520 | Forms 940, 941, 944, 941X | FUTA Credit Reduction Rates | FUTA Credit Reduction Rates

One of the administrative tasks a work from home 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.

Supporting Articles for Federal Payroll Taxes

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 of the 7 obligations.

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)

Steps one and two on mandatory employee withholdings and employer contributions are covered in my chat on Employee Payroll Taxes. Click here for your 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.

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

Sources: 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 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.

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 2026 lookback period for Form 941 is July 1, 2024 to June 30, 2025.
• The 2025 lookback period for Form 941 is July 1, 2023 to June 30, 2024.
• The 2024 lookback period for Form 941 is July 1, 2022 to June 30, 2023.
• The 2023 lookback period for Form 941 is July 1, 2021 to June 30, 2022.
• The 2022 lookback period for Form 941 is July 1, 2020 to June 30, 2021.
• The 2021 lookback period for Form 941 is July 1, 2019 to June 30, 2020.
• The 2020 lookback period for Form 941 is July 1, 2018 to June 30, 2019.

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 2026 tax deposits is the 2024 tax year.
• The lookback period for 2025 tax deposits is the 2023 tax year.
• The lookback period for 2024 tax deposits is the 2022 tax year.
• The lookback period for 2023 tax deposits is the 2021 tax year.
• The lookback period for 2022 tax deposits is the 2020 tax year.
• The lookback period for 2021 tax deposits is the 2019 tax year.
• The lookback period for 2020 tax deposits is the 2018 tax year.

Click here for current FUTA Rates.

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

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 of each employee's annual wages per quarter. Therefore when FUTA is 6%, the maximum an employer pays is $420 per employee per year.

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 6, 2025

Employers can receive a 5.4% maximum tax credit for paying state unemployment insurance taxes on time. This lowers the standard 6.0% gross FUTA rate down to an effective net rate of 0.6% on the first $7,000 of an employee's annual wages.

However, any additional liabilities owed due to a state's "credit reduction" status must be calculated and submitted annually. Employers use the IRS Schedule A (Form 940) to determine the exact credit reduction rate assigned to their state. The official list of finalized credit reductions is managed by the Department of Labor (DOL) and published by the IRS FUTA Credit Reduction page each year.

Because states frequently pay off or accrue new balances, the list changes annually:

• 2024 Tax Year: Only 3 jurisdictions carried credit reductions. California and New York had a 0.9% reduction rate (1.5% total effective FUTA rate), while the U.S. Virgin Islands had a 4.2% reduction rate (4.8% total effective rate). Connecticut successfully paid its loan balance on time to avoid the reduction entirely.
• 2025 Tax Year: The list shrank to 2 jurisdictions. New York repaid its advance and dropped off the list. California's reduction rate rose to 1.2% (1.8% total effective rate), and the U.S. Virgin Islands rose to 4.5% (5.1% total effective rate).

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".

Under federal rules, if a state carries an outstanding federal advance balance on January 1 for two consecutive years and fails to clear it by November 10 of the second year, a credit reduction is triggered. The tax credit is reduced by 0.3% for each consecutive year the state remains in default, incrementally increasing the employers' tax burden until the debt is cleared.

Historically, this trend has fluctuated heavily based on economic cycles. For example, during previous loan crises, Michigan began losing its federal tax credit in 2009, driving minimum effective FUTA rates up to 1.1% (compared to the standard baseline of the era), with net rates spiking as high as 1.7% in 2010 before shifting as repayments were made. Employers must check Schedule A of Form 940 every December to catch these shifting percentages before filing their annual returns.

Payroll Tax Deposit - FICA & FITW
Remitting Dates

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

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 - FUTA

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

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.

While an historic 2010 IRS webinar and subsequent CPA publications originally detailed the rollout of these rules, the core administrative mechanics for managing employer liabilities on unreported tips remain actively codified by the IRS.

Importantly, under current "No Tax on Tips" regulations, any tips that go unreported to the employer do not qualify for federal income tax deductions. They remain fully taxable under standard employment tax laws.

IRS Section 3121(q) Notice and Demand Procedures
Employers must navigate unreported tip liabilities using these established guidelines:

• Triggering Liability: An employer is not legally liable for its matching share of FICA (Social Security and Medicare) taxes on unreported tips until the IRS formally issues a Section 3121(q) Notice and Demand. This occurs when an employee files IRS Form 4137 with their individual tax return to self-report tip income they hid from management.
• Reporting the Penalty-Free Tax: Upon receiving the written Notice and Demand, the business must reflect the requested FICA tax amount on Line 5f of its next Form 941 (Employer’s Quarterly Federal Tax Return). If the employer reports the liability and deposits the funds on schedule according to the letter's instructions, no retrospective interest charges or deposit penalties will apply.
• Reviewing Discrepancies: The IRS Small Business/Self-Employed division administers this under its Form 4137 Compliance Program. The IRS cross-references employee filings and sends preliminary documentation, giving employers the opportunity to check internal point-of-sale data and dispute discrepancies before final assessments are locked in.

To cross-reference baseline reporting instructions for standard cash and credit card tips, employers should always consult Topic No. 761, Tips – Withholding and Reporting directly on the IRS portal.

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. As always, if any deadline falls on a weekend or legal, the deadline is normally pushed to the next business day. 

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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