Understanding Payroll Tax Deposit Rules and Regulations

September 15, 2012 in , , , ,

As a business owner, it is imperative to know payroll tax deposit rules, regulations, and deadlines. The following information touches on key tax obligations you should understand.

Electronic Federal Tax Payment System (EFTPS)
As of January 1, 2011, most businesses must register and make tax payments electronically through EFTPS because the Internal Revenue Service (IRS) will no longer accept Form 8109 deposits.

Details for enrolling in EFTPS can be found at www.eftps.gov.

There is one exception to this rule: Taxpayers who file Form 941 may send a check with the return if their liability is $2,500.00 or less for the quarter. Similarly, taxpayers who file Form 944 may remit payments with the return if their liability is $2.500.00 or less annually. Keep in mind it is ultimately your responsibility to ensure that all taxes are remitted on time to the IRS.

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2011 FICA Limits
Self-employed individuals have the same $106,800 OASDI (Old Age, Survivors, and Disability Insurance) wage base, with the social security tax rate for employers at 12.4 percent. There is no Medicare wage limit for the self-employed, and the Medicare rate remains at 2.9 percent. Taxes apply to net earnings from self-employment.

2010 2011 -employer 2011 – employee
Social Security (OASDI) wage base $106,800.00 $106,800.00 $106,800.00
Medicare (HI) wage base No Limit No Limit No Limit
Social Security (OASDI) percentage 6.2% 6.2% 4.2%
Medicare (HI) percentage 1.45% 1.45% 1.45%
Total Social Security and Medicare percentage 7.65% 7.65% 5.65%
Maximum Social Security (OASDI) withholding $6,621.60 $6,621.60 $4,485.60
Maximum Medicare (HI) withholding No Limit No Limit No Limit
Maximum Social Security and Medicare withholding No Limit No Limit No Limit
Federal Unemployment Tax (FUTA) $7,000.00 $7,000.00 $7,000.00

Federal Tax Deposit Rules
The IRS sends notices to all employers notifying them of their deposit frequency for the new year at the end of each tax year; for example, at the end of 2010, notices with 2011 rates were sent. The employer remains responsible for depositing federal taxes at the correct frequency even if a notice is not sent by the IRS, or if the notice sent was incorrectly. “Aggregate deposits” refers to the total amount of all taxes that were deposited during the calendar year.

  1. An employer is a monthly depositor for 2011 if the aggregate amount of employment taxes reported for the period from July 1, 2009, to June 30, 2010, is $50,000 or less, unless a daily deposit is required (see rule 3). Deposits are generally due on the 15th of the following month.
  2. An employer is a semiweekly depositor for 2011 if the aggregate amount of employment taxes reported for the period from July 1, 2009, to June 30, 2010, exceeds $50,000. Deposits for payments made on Wednesday, Thursday, and/or Friday are due on or before the following Wednesday. Deposits for payments made on Saturday, Sunday, Monday, and/or Tuesday are due on or before the following Friday.
    Note: Semiweekly employers with an accumulated unpaid liability of $100,000 or more during the deposit period must deposit within one banking day of the payroll check date (see rule 3).
  3. Employers with an accumulated unpaid liability of $100,000 or more during the deposit period must deposit within one banking day of the payroll check date. When a monthly depositor is subject to this rule, that employer immediately becomes a semiweekly depositor for the rest of 2011 and for 2012. Also, any monthly depositor who had a deposit of $100,000 or more between January 1, 2010, and December 31, 2010, is considered a semiweekly depositor for the rest of 2010 and for 2011.
  4. Form 941 employers with accumulated liability of less than $2,500 for the entire quarter may deposit or remit the amount with a timely filed Form 941, Employer’s Quarterly Federal Tax Return.
  5. Form 944 employers with accumulated liability of less than $2,500 for the entire year may deposit or remit the amount with a timely filed Form 944, Employer’s Annual Federal Tax Return.

Information for federal, semiweekly, monthly, and quarterly deposit due dates can be found at http://www.irs.gov/publications/p15/index.html.  For semi-weekly deposit due dates, calculate accumulated tax liability. If the unpaid liability is $100,000 or more, then the deposit is due within one banking day of the payroll check date. A monthly depositor who accumulates $100,000 or more is required to follow the semiweekly rule for the rest of 2011 and for 2012. All deposits should be made electronically via EFTPS.

To avoid possible penalties and interest, make sure you know what kind of federal deposit frequency you have – semiweekly, or monthly. And make sure you know when your deposits are due. Using a payroll provider can shift some of the actual duties of depositing your taxes, but you as the business owner are ultimately responsible to pay your taxes on time. Make sure to do your homework!

The information in this article should not be considered legal or accounting advice. It is provided for informational purposes only. If you require legal or accounting advice, or need other professional assistance, you should always consult your attorney, accountant, or human resources professional.

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