Tax Deposits: How and When to Pay Federal Taxes

As an employer, you are responsible for handling federal taxes withheld from your employees’ pay. A tax deposit is the payment of these withheld funds, along with your employer tax contributions, to the U.S. Treasury. These payments are separate from filing a tax return; a deposit sends the funds, while a return reconciles the total amount you owe against what you have paid over a period.

Identifying Federal Taxes for Deposit

The total amount of your federal tax deposit is a combination of several distinct tax types. A primary component is the federal income tax you withhold from your employees’ wages, determined by the information they provide on their Form W-4.

Another portion comes from Federal Insurance Contributions Act (FICA) taxes, which fund Social Security and Medicare. FICA taxes consist of two parts: the employee’s share, which you withhold from their pay, and the employer’s matching share. For 2025, the Social Security tax rate is 6.2% for both the employee and employer on wages up to the annual limit of $176,100. The Medicare tax rate is 1.45% for both parties on all employee wages.

Additionally, employers must withhold a 0.9% Additional Medicare Tax from employee wages that exceed $200,000 in a calendar year. There is no employer match for this additional tax.

The final component is the Federal Unemployment Tax Act (FUTA) tax, which is paid only by the employer and helps fund state workforce agencies. The FUTA tax rate is 6.0% on the first $7,000 of wages paid to each employee. However, most employers receive a tax credit of up to 5.4% if they pay state unemployment taxes on time, which reduces the effective FUTA rate to 0.6%.

This full credit may not be available to employers in “credit reduction states,” which are states with outstanding federal loans for unemployment benefits. FUTA tax is deposited quarterly if the liability exceeds $500 in a given quarter.

Determining Your Deposit Schedule

The IRS assigns one of two deposit schedules for employment taxes: monthly or semi-weekly. Your schedule for a calendar year is based on the total tax liability reported on Form 941 during a four-quarter “lookback period.” This period runs from July 1 of the second preceding year through June 30 of the prior year.

For example, to determine your 2025 schedule, you would review your total taxes on Forms 941 from July 1, 2023, to June 30, 2024.

If you reported $50,000 or less in taxes during the lookback period, you are a monthly depositor. You must deposit taxes for each calendar month by the 15th day of the following month. New employers are considered monthly depositors for their first year.

If you reported more than $50,000 in taxes, you are a semi-weekly depositor. For payroll paid on Wednesday, Thursday, or Friday, the deposit is due by the following Wednesday. For payroll paid on Saturday, Sunday, Monday, or Tuesday, the deposit is due by the following Friday.

Two special rules can override your assigned schedule. If you accumulate a tax liability of $100,000 or more on any single day, you must deposit the funds by the close of the next business day. If your total tax liability for an entire quarter is less than $2,500, you can pay the full amount with your timely filed Form 941.

Required Information and Reporting Forms

The primary reporting form for federal income and FICA taxes is Form 941, Employer’s QUARTERLY Federal Tax Return. This is filed four times a year to report your total tax liability and list the individual deposits you made, ensuring they match the total amount due.

Some of the smallest employers, who have annual tax liabilities of $1,000 or less, may be instructed by the IRS to file Form 944, Employer’s ANNUAL Federal Tax Return, instead of Form 941. Separately, all employers subject to FUTA taxes must file Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return. This form is used to report your total FUTA tax liability for the year.

How to Make a Tax Deposit

All federal tax deposits must be made via electronic funds transfer using the Electronic Federal Tax Payment System (EFTPS), a free service from the U.S. Department of the Treasury. Payments by paper check or cash are not permitted.

To use EFTPS, you must first enroll by providing your business name, Employer Identification Number (EIN), and banking information. The IRS will then mail a Personal Identification Number (PIN) to your address on file, which can take five to seven business days. You cannot make payments until you receive this PIN, so enroll well before your first deposit is due.

To make a payment, log in to the EFTPS website with your EIN and PIN. You will select the tax form, enter the payment amount, choose the tax period, and schedule the settlement date. You will receive an Electronic Funds Transfer (EFT) confirmation number as proof of payment.

Penalties for Non-Compliance

Failing to deposit the correct amount of tax on time results in a Failure to Deposit penalty. The penalty is a percentage of the unpaid tax and increases based on how late the deposit is.

The penalty rates are:

• 2% of the unpaid tax for deposits one to five days late.
• 5% of the unpaid tax for deposits six to 15 days late.
• 10% for deposits more than 15 days late, or if you pay within 10 days of the first IRS notice demanding payment.
• 15% if you do not pay an amount due within 10 days after the date of the first IRS notice.

These penalties are automatically assessed and can lead to other IRS collection actions for persistent non-compliance.