When Should Payroll Taxes Be Paid by Employers?

Payroll taxes are amounts employers withhold from employee wages and contribute for government programs. Paying these taxes accurately and on time is crucial for businesses to maintain compliance and avoid penalties. This guide explores federal and state requirements for payroll tax payments.

Understanding Federal Payroll Tax Obligations

Employers must withhold and remit several federal payroll taxes: Federal Income Tax Withholding (FITW), Social Security tax, Medicare tax, and the Federal Unemployment Tax Act (FUTA) tax. Each of these taxes serves a distinct purpose.

Federal Income Tax Withholding represents a prepayment of an employee’s annual income tax liability. Employers calculate this amount based on information provided by the employee on Form W-4 and the applicable withholding tables.

Social Security and Medicare taxes, collectively known as Federal Insurance Contributions Act (FICA) taxes, fund retirement, disability, and healthcare benefits. The FICA tax rate is 15.3% of an employee’s taxable wages, with 6.2% for Social Security and 1.45% for Medicare. Employers and employees each pay half of this amount. The Social Security portion applies only up to an annual wage base limit ($176,100 for 2025), while the Medicare tax has no wage base limit.

The Federal Unemployment Tax Act (FUTA) tax is paid solely by employers to fund federal unemployment benefits. The FUTA tax rate is 6% on the first $7,000 of wages paid to each employee annually. Most employers receive a credit for state unemployment taxes paid, which significantly reduces the effective FUTA tax rate, often down to 0.6%. These federal taxes must be deposited regularly, with the frequency depending on the employer’s tax liability.

Determining Your Federal Payroll Tax Deposit Schedule

Employers follow either a monthly or semi-weekly deposit schedule for federal income tax withholding, Social Security, and Medicare taxes (Form 941 taxes). This schedule depends on the employer’s total tax liability during a “lookback period.”

The lookback period for Form 941 filers is the 12-month period ending on June 30 of the preceding year. For example, to determine the 2025 deposit schedule, an employer reviews tax liability from July 1, 2023, to June 30, 2024. If the total tax liability was $50,000 or less, the employer is a monthly depositor. Monthly depositors remit taxes for payments made during a month by the 15th day of the following month.

If tax liability during the lookback period exceeded $50,000, the employer is a semi-weekly depositor. Semi-weekly depositors have more frequent deadlines based on the wage payment day. Wages paid Wednesday-Friday are due by the following Wednesday. Wages paid Saturday-Tuesday are due by the following Friday. New employers are generally monthly depositors for their first year.

The “Next-Day Deposit Rule” overrides regular schedules. If an employer accumulates $100,000 or more in federal income tax, Social Security, and Medicare taxes on any single day, they must deposit those taxes by the next business day. This rule also changes a monthly depositor to a semi-weekly depositor for the remainder of the current calendar year and the entire following calendar year. Employers with a quarterly tax liability of less than $2,500 can pay taxes when filing Form 941, if they do not incur a $100,000 next-day deposit obligation.

FUTA tax has a separate deposit schedule based on the accumulated tax liability. If the FUTA tax liability for a quarter is $500 or less, it can be carried forward to the next quarter. Once the cumulative FUTA tax liability exceeds $500 at the end of any quarter, the entire amount must be deposited by the last day of the first month following that quarter. If the total annual FUTA tax liability is $500 or less by the fourth quarter, it can be paid with Form 940 by January 31 of the following year.

Making Federal Payroll Tax Deposits

Federal tax deposits, including federal income tax withholding, Social Security, Medicare, and FUTA, must be made through electronic funds transfers (EFT). The Electronic Federal Tax Payment System (EFTPS) is the required method for these deposits.

Employers must enroll in EFTPS. This process typically takes 5 to 7 business days as a Personal Identification Number (PIN) is mailed. Enrollment requires the employer’s Employer Identification Number (EIN) and bank account information. After enrollment, payments can be scheduled online or by phone.

For monthly depositors, funds must be in the IRS’s account by the 15th day of the following month. Semi-weekly depositors must make deposits within three business days of the end of the semi-weekly period. If a deposit due date falls on a weekend or legal holiday, the deadline shifts to the next business day.

Failure to deposit taxes on time, in the correct amount, or by the required electronic method can result in penalties. The Internal Revenue Service (IRS) imposes a “failure to deposit” penalty, which increases based on how late the deposit is. For deposits 1 to 5 days late, the penalty is 2% of the unpaid amount. This penalty rises to 5% for deposits 6 to 15 days late and 10% for those more than 15 days late. Interest also accrues on unpaid amounts.

State Payroll Tax Payment Requirements

Employers must also navigate state payroll tax requirements. Most states with an income tax require employers to withhold state income tax from employee wages. Each state’s revenue department determines the calculation methods, remittance procedures, and due dates for these amounts.

State Unemployment Tax Act (SUTA) contributions are another common state payroll tax paid by employers. SUTA rates and wage bases differ widely among states. Some states may also impose additional payroll taxes, such as for disability insurance or paid family leave, each with its own rules and payment schedules.

Employers must consult the specific requirements of each state in which they operate. State revenue departments, labor departments, or unemployment agencies provide guidance on deposit frequencies, payment methods, and forms. Staying informed about these state-specific mandates helps avoid penalties.