Section 11 of Pub. 15: Rules for Depositing Taxes
Navigate the complexities of federal employment tax deposits. Understand how to determine payment timing and meet IRS requirements to ensure full compliance.
For any business with employees, managing payroll taxes is a fundamental responsibility. The Internal Revenue Service (IRS) provides detailed guidance in Publication 15, also known as Circular E, Employer’s Tax Guide. Section 11 of this publication specifically outlines the rules for depositing federal employment taxes, which include income tax withheld from employees’ paychecks, as well as both the employer and employee shares of Social Security and Medicare taxes. Understanding these deposit obligations is a primary duty for employers, as failure to comply can lead to significant financial consequences.
Determining Your Deposit Schedule
An employer’s first step in complying with federal tax deposit rules is to determine their required deposit schedule. The IRS establishes two possible schedules for employers: monthly or semiweekly. The correct schedule depends on the total amount of employment taxes the business reported during a specific lookback period.
For employers who file Form 941, Employer’s QUARTERLY Federal Tax Return, the lookback period is a four-quarter span running from July 1 of the second preceding year through June 30 of the preceding year. For example, to determine a deposit schedule for the 2025 calendar year, an employer would examine the total taxes reported on their Forms 941 for the third and fourth quarters of 2023 and the first and second quarters of 2024.
If an employer’s total reported taxes for the entire lookback period were $50,000 or less, they are classified as a monthly depositor. Conversely, if the total taxes exceeded $50,000, the employer must adhere to the more frequent semiweekly deposit schedule.
A special rule applies to new businesses. Since a new employer has not been in operation for a full lookback period, their tax liability for the lookback period is considered to be zero. The IRS designates the new business as a monthly depositor for its first calendar year of operation, though the employer must still monitor their accumulating tax liability for other rules that could alter their deposit timing.
The Deposit Rules and Process
The IRS mandates that all federal tax deposits be made using electronic funds transfer (EFT). The primary system for this is the Electronic Federal Tax Payment System (EFTPS), a free service provided by the Department of the Treasury. Employers must enroll in EFTPS before they can make payments; enrollment can be completed online at EFTPS.gov or by phone. The system allows businesses to schedule payments 24/7, providing a secure and verifiable method for remitting taxes.
The $100,000 Next-Day Deposit Rule overrides both monthly and semiweekly schedules. If, on any day, an employer accumulates a tax liability of $100,000 or more, the deposit requirement is accelerated. The employer must deposit the full amount by the close of the next business day. This rule applies regardless of whether the employer is normally a monthly or semiweekly depositor.
If an employer’s total tax liability for the entire return period—for example, a full quarter for a Form 941 filer—is less than $2,500, they are not required to make deposits during that quarter. Instead, they can pay the full tax amount with their timely filed employment tax return.
Consequences of Deposit Errors
Failing to deposit employment taxes correctly and on time results in penalties. The Failure to Deposit penalty is calculated as a percentage of the unpaid tax, and the rate increases based on the length of the delay.
The penalty rates are:
- A 2% penalty on the underpaid amount for a deposit that is one to five days late.
- A 5% penalty if the deposit is six to 15 days late.
- A 10% penalty for deposits that are 16 or more days late.
- A 10% penalty also applies if an employer pays the taxes directly to the IRS instead of using EFTPS when a deposit is required.
The penalty can escalate further if the IRS has to issue a formal notice. If the tax remains unpaid more than 10 days after the date of the first notice and demand for payment is sent by the IRS, the penalty increases to 15% of the unpaid amount.
Penalties may be waived if the employer can demonstrate that the failure was due to reasonable cause and not willful neglect. Errors in deposits are addressed on the relevant employment tax return, such as Form 941, or through a correction form like Form 941-X.