What Is the IRS Lookback Rule for Employers?
Learn how the IRS determines if your business must deposit employment taxes monthly or semi-weekly based on your past tax liability.
The Internal Revenue Service (IRS) lookback rule dictates how frequently an employer must deposit federal employment taxes, which include withheld federal income tax and both the employer and employee shares of Social Security and Medicare taxes. The rule establishes a specific historical period the IRS examines to determine an employer’s tax deposit schedule for the upcoming calendar year.
This system connects an employer’s past tax liabilities to their future deposit obligations. Correctly determining and adhering to the assigned deposit schedule is a component of payroll tax administration, and failure to do so can lead to significant penalties.
Determining Your Lookback Period
The lookback period is a fixed 12-month timeframe that dictates your deposit requirements for the upcoming calendar year. For employers who file Form 941, Employer’s QUARTERLY Federal Tax Return, this period is the four-quarter span from July 1 of the second preceding year to June 30 of the prior year.
To determine your deposit schedule for the 2025 calendar year, you must examine your tax liabilities from the lookback period of July 1, 2023, through June 30, 2024. This period covers the third and fourth quarters of 2023 and the first and second quarters of 2024. The liabilities reported during these four quarters determine your deposit frequency for all of the following year.
Calculating Your Total Tax Liability
After identifying the lookback period, you must calculate your total employment tax liability by gathering the four quarterly Form 941s filed for that 12-month window. For the 2025 deposit year, you would need the Forms 941 for the quarters ending September 30, 2023; December 31, 2023; March 31, 2024; and June 30, 2024.
The figure needed is on Line 12, “Total taxes after adjustments and credits.” You must sum the amounts from Line 12 on each of the four relevant quarterly returns to find your total tax liability for the lookback period. For instance, if the Line 12 amounts for the four quarters were $10,000, $12,000, $11,000, and $13,000, your total lookback liability would be $46,000.
Identifying Your Deposit Schedule
Your total tax liability from the lookback period determines if you are a monthly or semi-weekly depositor. If your total reported taxes were $50,000 or less, you are a monthly schedule depositor. If your total liability exceeded $50,000, you must follow a semi-weekly deposit schedule.
For monthly depositors, tax deposits are due by the 15th day of the month after wages were paid. For example, taxes on wages paid in January must be deposited by February 15. This schedule remains the same for the entire calendar year unless a special rule is triggered.
The semi-weekly schedule is tied to your payroll dates. If your payday is on a Wednesday, Thursday, or Friday, the tax deposit is due by the following Wednesday. If your payday is on a Saturday, Sunday, Monday, or Tuesday, the deposit is due by the following Friday. A business day is any day other than a Saturday, Sunday, or a legal holiday.
Special Rules and Considerations
New Employers
The lookback rule does not apply to new businesses, as they have a tax liability of zero for the lookback period. New employers are assigned a monthly deposit schedule for their first year of business.
The $100,000 Next-Day Deposit Rule
The $100,000 Next-Day Deposit Rule overrides an employer’s assigned schedule. If an employer accumulates a tax liability of $100,000 or more on any day, the deposit is due by the close of the next business day. This rule applies to both monthly and semi-weekly depositors. After this threshold is triggered, the employer becomes a semi-weekly depositor for the rest of the current year and for the entire following calendar year.
The $2,500 De Minimis Rule
If your total tax liability for a quarter is less than $2,500, you are not required to make separate deposits. You can instead pay the full amount with your timely filed Form 941 for that quarter. This option is available as long as you have not incurred a $100,000 next-day deposit obligation. If you are unsure whether your liability will remain under this threshold, the IRS recommends making deposits under the standard rules to avoid penalties.