Lesson 8 - How to make tax deposits and file a return to report your payroll taxes

To view this page ensure that Adobe Flash Player version 11.1.0 or greater is installed.

Main menu

Janene's Story

Overview

Making tax deposits

Deposit Due Dates

How do I know what deposit schedule I'm on?

Monthly depositor

Semi-Weekly Depositor

$100K Next-Day Deposit Rule

Late Deposit Penalties

Use electronic fund transfer for all federal tax deposits

Reporting Payroll Taxes

Payroll Reporting Requirements

Information you'll need to prepare Form 941

Wage Base

A responsible party must sign Form 941

Penalties and Interest

Correcting Employment Taxes

Filing Options

Lesson Summary

Janene's Story

Hi, I'm Janene. My real estate business is doing well, and I've been learning a lot from these lessons. So far, I've learned about the differences between employees and contractors, how to manage payroll, and information about unemployment taxes. Now I need to know how to make tax deposits and file a return to report my payroll taxes, and I'm sure you have plenty of information to help me.

We sure do, Janene.

Welcome everyone to How to Make Tax Deposits and File a Return to Report Your Payroll Taxes.

Overview

In this lesson, we'll cover... your responsibilities for depositing taxes and filing a return to report payroll taxes. Specifically, we'll explain the federal tax deposit process, deposit requirements and penalties, and show you how to file Form 941, Employer's Quarterly Federal Tax Return.

Making tax deposits

How often you pay these taxes depends on the type of tax and on the amount.

But how do I know when I'm supposed to deposit the taxes?

There are a number of rules about when to deposit your payroll taxes, but the best time to make a tax deposit is the same day you pay your employees. That way, you get it done right away without any worries about missing deadlines or not having the money when it's due. You can deposit anytime up through the deposit due date, but if you deposit late, penalties will apply.

And what are the deposit due dates?

First, if the payroll tax is less than 25 hundred dollars for the current quarter or the preceding quarter and you did not incur a 100 thousand dollar next-day deposit obligation during the current quarter, you can pay it with your Form 941, Employer's Quarterly Federal Tax Return. But you have to file on time for this rule to apply. We'll talk more about Form 941 later.

Second, if the payroll tax is 25 hundred dollars or more for the quarter, your deposit is based either on a monthly or on a semi-weekly schedule. How do I know what deposit schedule I'm on?

You use a specific 12-month period called the lookback period. Your lookback period is the 12-month period ending on June 30th from last year. For example, to figure out your deposit schedule for the current year, you need to look back to those four previous quarters ending on June 30th of last year.

Why doesn't the IRS just look at January through December?

By looking at these quarters, the IRS can accurately see your tax liability for a full 12 months. If you are a new employer and had no employees during the lookback period, or if all your taxes totaled 50 thousand dollars or less for the period, you are a monthly depositor. If your total taxes were more than 50 thousand dollars, you make deposits based on the semi-weekly schedule.

What does it mean to be a monthly depositor?

On this schedule... you deposit monthly payroll taxes by the 15th day of the following month. If a deposit is required to be made on a day that is not a business day, make the deposit by the close of the next business day. A business day is any day other than a Saturday, Sunday, or legal holiday. The term "legal holiday" for deposit purposes means any legal holiday in the District of Columbia. Legal holidays in the District of Columbia are provided in IRS Publication 15, Employer's Tax Guide. Depositing and reporting are separate actions. Even though you may pay monthly throughout the quarter, you only file Form 941 once at the end of the quarter.

So then what does it mean to be a semi-weekly depositor?

Under the semi-weekly deposit schedule... deposit employment taxes for payments made on Wednesday, Thursday, and/or Friday by the following Wednesday. Deposit taxes for payments made on Saturday, Sunday, Monday, and/or Tuesday by the following Friday. If you are a semi-weekly depositor, you must complete Form 941 Schedule B, Report of Tax Liability for Semi-weekly Schedule Depositors, and submit it with Form 941. The Schedule B has daily sections on it; this allows you to report tax liabilities corresponding to the dates when wages were paid. Again, use the Schedule B to report the tax liability and not the deposits.

Any other rules I need to know about?

Well, Janene, there is a third deposit rule. If you accumulate 100 thousand or more dollars in taxes on any day during a monthly or semi-weekly deposit period, you must deposit the tax by the next business day, whether you are a monthly or a semi-weekly schedule depositor. For more information on the 100 thousand dollar next-day deposit rule, see IRS Publication 15, Employer's Tax Guide.

Why is it important to determine my deposit schedule?

It's not uncommon for a new business to run short of cash, but don't forget that the money you hold for your employees is not yours to spend. You are entrusted with these funds- that's why the penalties are so strict. The penalties for late deposits can be a large and unnecessary expense for your business. In fact, businesses can fail because they don't clearly understand and follow the tax deposit requirements. So, make your tax deposits on time.

Can I write a check to make deposits, or do I have to make deposits electronically?

You must use electronic fund transfer to make all federal tax deposits. Generally, electronic fund transfers are made using the Electronic Federal Tax Payment System, or EFTPS. EFTPS is a free service provided by the Department of Treasury. EFTPS is safe, secure, and available 24/7 over the internet or by telephone. For more information, click on the EFTPS logo on the homepage of www.irs.gov or go directly to the EFTPS Website at www.eftps.gov. Additional information about EFTPS is also available in IRS Publication 966, Electronic Federal Tax Payment System: A Guide to Getting Started.

If you do not want to use EFTPS, you can arrange for your tax professional, financial institution, payroll service, or other trusted third party to make deposits on your behalf. Services provided by your tax professional, financial institution, payroll service, or other third party may have a fee.

Reporting Payroll Taxes

So now that I've learned how to calculate and deposit withholding taxes, how do I file a return to report my payroll taxes?

Each calendar quarter, almost all employers who pay wages subject to tax withholding must file Form 941, Employer's Quarterly Federal Tax Return. There are some employers, however, who do not need to file Form 941 quarterly. If you are a seasonal, household, or agricultural employer, there are publications that may help you. Go to www.irs.gov and enter those terms in the search box to find more information.

Now, let's look at the payroll reporting requirements for the majority of small businesses by taking a closer look at Form 941. You use Form 941 to report wages paid and the taxes due on those wages, quarterly. A quarter consists of three calendar months starting on the first day of the first month and ending on the last day of the last month of that quarter. Form 941 is due at the end of the following month. This makes the due dates April 30th, July 31st, October 31st, and January 31st. In addition, if you timely deposited all taxes when due, you have 10 additional calendar days from the due date to file. Also, if the due date for filing Form 941 falls on a Saturday, Sunday, or legal holiday, it's due the next business day. As we said earlier, depositing and reporting are separate actions. Even though you may pay throughout the quarter, you only file Form 941 once at the end of the quarter.

What do I need to prepare my Form 941?

Janene, you'll need a number of pieces of information to prepare your Form 941. Your EIN, which we discussed in the first lesson of this workshop The number of employees, total wages paid-- include tips reported-- taxable fringe benefits provided, and other forms of compensation paid to the employees The withheld income taxes, and this includes all income taxes withheld from your employees including tax withheld from tips, taxable fringe benefits, and certain other payments The total of all wages subject to Social Security and Medicare taxes. This amount includes any sick pay and taxable fringe benefits subject to Social Security taxes. Records of all tips. This will be added to the wages and other compensation paid. Always remember to have a record of your tax deposits available when you prepare your quarterly returns. This information helps you accurately report the amounts of your deposits and the type of deposit schedule you are required to use.

You may have paid wages but were not required to withhold income taxes; you'll still include those wages on Form 941. Do not include your contributions to employee plans that are excluded from the employees' wages such as 401K and cafeteria plans. Also, there is a limit on the amount of wages subject to Social Security taxes, called the wage base. Once an employee's wages reach the wage base, do not withhold any more Social Security tax. The wage base may change from year to year. IRS Publication 15 shows the current year's wage base for Social Security taxes. All wages paid, however, are subject to the Medicare tax. If you owe additional taxes, however, and the taxes owed are less than one dollar, then you do not have to pay the amount. If you deposited more than the correct amount for a quarter, you can choose on Form 941 for that quarter to have the overpayment refunded or applied as a credit to your next return.

Form 941 must be signed by a responsible party. If the business is sole proprietorship, the return must be signed by the owner of the business; if a partnership or unincorporated organization, by a responsible and duly authorized member, partner, or officer having knowledge of its affairs; if a corporation, by the president, vice-president, or other principle officer duly authorized to sign. Form 941 may also be signed by a duly authorized agent of the taxpayer if a valid power of attorney has been filed. In addition, you may designate someone else to discuss the Form 941 with the IRS by completing the third-party designee section of the form. For instance, if the IRS has a question, you may want us to contact your accountant.

There is a penalty for filing a late Form 941 return. There are also deposit penalties for making late deposits and for not depositing the proper amount. In addition, there are penalties for willful failure to file returns and to pay taxes when due, for filing false returns, and for submitting bad checks. Then, interest is charged on the total of unpaid tax and the penalty. For more information on penalties and interest, we encourage you to review Notice 746, Information about Your Notice Penalty and Interest.

What if I made a mistake?

Janene, it's easy to correct employment taxes. Go to www.irs.gov, enter "correcting employment tax" in the search box, and then click on that link. This will lead to the Correcting Employment Taxes page where you can download the Form 941 X, Form 943 X, or Form 944 X as well as the instructions on how to correct the errors. Employers can submit the correction as soon as they discover an error and in the case of an overpayment, select to apply the overage to the next quarter or request a refund.

Filing Options

How can I file my returns? Can I file them electronically?

There are options for filing Form 941 and in fact, most forms with the IRS. You can electronically file or mail a paper return. Let's take a closer look at the electronic option. You can file electronically through an authorized, third-party transmitter using the Form 941 online filing program. The IRS Website, www.irs.gov, has a list of Approved IRS e-file for Business Providers and e-file for Business Partners who offer Form 941 online filing. Return preparation and filing is easy. You visit the provider's secure Website and enter the information needed to complete your employment tax return. The tax is calculated for you and your return is filed online using the service of the Form 941 online filing provider. You sign electronic returns by using a personal identification number, or PIN. Within 48 hours, the IRS sends an official acknowledgement that your return was received. If you owe money, you can authorize an electronic funds withdrawal from your checking or savings account or use a credit card to pay your taxes. However, do not use an electronic funds withdrawal or a credit card to make federal tax deposits.

Lesson Summary

These lessons have been a great help to me- I finally feel I know what I'm supposed to do. Before we finish, though, can I have a review of this one?

Janene, we are glad we could help. In this lesson... we discussed the basics of making tax deposits and filing a return to report payroll taxes. Specifically, we talked about due dates for tax deposits, how to determine if you are a monthly or semi-weekly depositor, and making deposits electronically. We also discussed reporting payroll taxes on Form 941 as well as filing Form 941 electronically. Don't forget to consult IRS Publication 15, Employer's Tax Guide, if you need more information. You can also go to www.irs.gov/smallbiz and click on "Filing/Paying Taxes" in the left navigation bar. Thanks for joining us for this lesson. Best wishes on your business.