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Payroll Taxes

How Does an Employee Payroll Tax Deposit Schedule Work?

December 2nd, 2015

What is an employee payroll tax deposit schedule?

The IRS collects employer payroll taxes on a scheduled basis, which includes social security, Medicare, FUTA (Unemployment Insurance), and estimated income taxes.  The employer essentially acts as an agent for the government to collect and deposit the money to the government regularly.

After figuring out what employee taxes and how much to withhold, the employer is then required to deposit the employee payroll taxes to the IRS on a regular schedule.  If the deposit is made late or insufficient, penalty and interests are automatically calculated without exception.  The employee payroll tax deposit schedule can be different for different companies.

The difference between employee payroll tax deposit schedule and employee pay-cycle

Do not confuse the employee payroll tax deposit schedule with an employee pay-cycle.  The employee pay-cycle is how often a company pays its employees.  It is the company decision to pay weekly, bi-weekly or monthly, e.g.  The employee payroll tax deposit schedule, on the other hand, is determined by the IRS.

How often do I need to pay employee payroll tax?

The employee payroll tax deposit schedule is determined by the IRS based on the tax amounts and the history (prior 6 quarters, e.g.) of the company.  The IRS has two typical payroll tax deposit schedules, Monthly or Semi-weekly and it sends a letter at the end of the year to notify the company of its employee payroll tax deposit schedule for the coming year.  If your company is new, you start with the monthly schedule.

  • Monthly deposit – For any checks issued in a month, regardless of the pay-cycle, the employee payroll taxes need to be received by the IRS before the 15th of the following month.  For example, a company paid employees twice in July (semi-monthly pay-cycle), the taxes are due to the IRS before August 15.
  • Semi-weekly deposit – Once the tax amount exceeds a threshold ($50,000 for a quarter, e.g.), the employer is required to deposit the money in 3-5 business days after each pay-day.  For example, if employees are paid on Wednesday, Thursday or Friday, the employee payroll taxes need to be deposited by the next Wednesday (3, 4 or 5 business days).  Taxes are due by Friday for checks paid on other days (Saturday, Sunday, Monday and Tuesday).

There are two exceptions.

  1. If the tax amount is small (<$2,500 for the quarter, e.g.), the employer can make the payment when filing the quarterly form 941, meaning the payment is due quarterly.
  2. If the tax amount for a single payday is more than $100,000, the deposit needs to be made before the next banking day.

The employee payroll tax deposit schedule applies to the income tax, social security, and Medicare taxes (form 941 taxes) while FUTA tax (Form 940 tax) is due only once a quarter.

If you do not know your payroll tax deposit schedule, the best way is to contact the IRS.  For small companies, monthly employee payroll tax deposit is typical with quarterly as an exception if the total amount for the quarter is less than $2,500 for the current and the prior quarter.  Once your company grows and the tax amount exceeds $50,000, you need to deposit in 3-5 business days.

What are the penalties for paying your employee payroll tax late?

A late employee payroll tax deposit is the most common reason for employers to be fined by the IRS.  The fine is determined by how late the payments are made and it could become a large amount.  For example, if the tax amount is $3,000, the penalty can accumulate very quickly.

On time 1-5 days late 6-15 days late + 16 days late 10 days after notice
$0 $60 $150 $300 $450
0% 2% 5% 10% 15%

In summary, make sure you know and follow your employee payroll tax deposit schedule. The fine is automatic and proportional to the amount of taxes owed. It will accumulate very quickly, so be careful.

About Paycheck Manager

Every Business Needs to Process Payroll!

Every employer, when issuing paychecks, is required to maintain some form of payroll management. To successfully do so, an employer must consider these three tasks:

  • Accurate calculation of payroll taxes
  • Timely payroll tax payments
  • Timely payroll filing and reporting

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