What Are the Form 941 Deposit Rules?

Employers use Form 941, the Employer’s QUARTERLY Federal Tax Return, to report payroll taxes to the Internal Revenue Service. These taxes include federal income tax withheld from employee wages and both the employer and employee shares of Social Security and Medicare taxes. Filing this quarterly form and depositing the associated taxes are two separate obligations, each with its own deadlines and procedures.

Determining Your Deposit Schedule

An employer’s requirement for when to deposit payroll taxes is dictated by one of two schedules: monthly or semi-weekly. The specific schedule a business must follow for a calendar year is determined by the total amount of taxes reported on its Forms 941 during a designated “lookback period.” This lookback period is a fixed 12-month window covering the four quarters from July 1 of the second preceding year through June 30 of the prior year.

A business qualifies as a monthly schedule depositor if its total reported taxes during the lookback period were $50,000 or less. For these employers, all payroll taxes accumulated during a calendar month must be deposited by the 15th day of the following month. For example, taxes from all paydays in March would be due by April 15th. If the 15th falls on a weekend or a legal holiday, the deposit is due on the next business day.

If an employer reported more than $50,000 in taxes during the lookback period, it is classified as a semi-weekly schedule depositor. The rules for this schedule are tied to payday timing rather than the calendar month. For paydays that fall on a Wednesday, Thursday, or Friday, the deposit is due by the following Wednesday. For paydays on Saturday, Sunday, Monday, or Tuesday, the deposit must be made by the following Friday.

Certain situations can override an employer’s established deposit schedule. The $100,000 Next-Day Deposit Rule applies to both monthly and semi-weekly depositors. If an employer accumulates $100,000 or more in tax liability on any single day, those taxes must be deposited by the close of the next business day. An employer who triggers this rule automatically becomes a semi-weekly depositor for the remainder of that year and for the entire following calendar year.

A separate provision exists for businesses with very small tax liabilities. If the total tax liability for the current or preceding quarter is less than $2,500, the employer may pay the full amount with their timely filed Form 941 instead of making separate deposits. This exception is only available if the business has not triggered the $100,000 next-day rule during the quarter. For new employers with no prior tax history, their tax liability in the lookback period is considered zero, so they begin as monthly depositors by default.

How to Make Federal Tax Deposits

The required method for remitting Form 941 tax deposits is through the Electronic Federal Tax Payment System (EFTPS). This is a free service from the U.S. Department of the Treasury that allows businesses to make federal tax payments online or by phone. Using EFTPS ensures payments are properly credited and provides a digital record of the transaction for record-keeping.

Before making a payment, a business must first enroll in the system online at the EFTPS website. Enrollment requires the business’s Employer Identification Number (EIN), banking information for the payment account, and contact details. After submitting the application, the IRS mails a Personal Identification Number (PIN) to the business’s address of record. This PIN is necessary to activate the account and create a password.

Once enrolled, the user logs into their EFTPS account, selects the option to make a payment, and chooses Form 941. The system will then prompt for the payment amount, the tax period, and the settlement date, which is when funds will be withdrawn from the business’s bank account. To ensure a deposit is timely, the payment must be scheduled through EFTPS no later than 8 p.m. Eastern Time the day before the due date. After confirming the details, the user submits the payment and receives an EFTPS Acknowledgment Number as proof of the transaction, which should be saved with the company’s tax records.

Penalties for Incorrect or Late Deposits

Failing to deposit the correct amount of payroll taxes on time results in the Failure to Deposit (FTD) penalty. The IRS applies this penalty as a percentage of the unpaid tax, and the rate increases based on how late the deposit is. This tiered structure is designed to penalize prolonged non-compliance more heavily.

The penalty starts at 2% of the unpaid tax for deposits one to five calendar days late. The rate increases to 5% if the deposit is six to 15 calendar days late. For deposits made more than 15 calendar days after the due date, the penalty is 10%. This 10% rate also applies to amounts a business pays within 10 days of the first IRS notice demanding payment.

The penalty reaches its maximum of 15% of the unpaid tax if the amount remains unpaid for more than 10 days after the date of the first IRS notice. Interest is also charged on any unpaid penalties and begins to accrue from the original due date of the tax.

The IRS may agree to abate, or remove, penalties if the employer can show reasonable cause for the failure to deposit. This involves demonstrating that the business exercised ordinary business care but was unable to make the deposit on time due to circumstances beyond its control. A request for abatement requires a detailed explanation and supporting documentation.