Payroll Tax Deposits

7 Steps To Meet Your Obligations

Published November 2012 | Updated June 7, 2024

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 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

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 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 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 June 7, 2024

Employers can receive a 5.4% credit (in most states) for paying state unemployment insurance taxes on time and this lowers the effective FUTA rate to just 0.6% if you qualify.

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 3 states in 2023 - California, New York, and the Virgin Islands currently have lower FUTA credits due to outstanding federal loans, raising their effective rates to 1.2% vs the standard 0.6%. 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 three state affected in 2023 on Schedule A of Form 940 which was released sometime in early December, 2023.

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.

Back on September 29, 2010 the IRS 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 used to be able to view an archived copy the event at: http://www.irsvideos.gov/CollectingEmployerTaxesTips/ but irsvideos is no longer operational.

That said, 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.

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.

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.

New to Bookkeeping Essentials?

My suggestion to you ... enjoy a tall cool glass of lemon water while you click and poke and peek and snoop this site ... perhaps start with the blog which lists the most recent updated articles.

I Hope You Enjoy Your Visit Today,
Your Tutor