You generally pay your federal payroll taxes by periodically depositing them with a bank or other financial institution that is authorized to accept federal tax deposits or with the Federal Reserve bank or branch serving your locality. In most cases, you should use Form 8109, Federal Tax Deposit Coupon, to make the deposit. As for timing, different rules apply to income and FICA taxes and to FUTA taxes.

Income and FICA taxes. Usually, you must deposit these taxes on a monthly basis or a semiweekly basis. Towards the end of each year, the IRS tells you which method you should use during the upcoming calendar year. However, if your employment taxes for a quarterly or annual period are less than $2,500, you can remit the taxes with your quarterly (Form 941) or annual (Form 945) return in lieu of depositing them.

Assuming that your total taxes for the quarter are $2,500 or more, you will be on a monthly or semiweekly schedule, depending on the amount of income and FICA taxes you reported during a specified "lookback period." For each calendar year, the lookback period is the four-quarter period ending on June 30 of the prior year. Thus, for 2002, the lookback period is July 1, 2000, to June 30, 2001. If you reported $50,000 or less in taxes during the lookback period, you deposit on a monthly basis. Otherwise, you deposit on a semiweekly basis. All new employers deposit their taxes on a monthly basis for their first calendar year, because their tax liability for the lookback period is considered to be zero.

Under monthly depositing, you deposit the taxes that you're required to withhold or pay on wages paid during a calendar month by the 15th day of the following month.

Under semiweekly depositing, you must deposit the taxes that you're required to withhold or pay on wages for a given pay period within the next week. Specifically, you must deposit the taxes associated with wages you pay on Wednesday, Thursday, or Friday by the following Wednesday. You must deposit the taxes associated with wages you pay on Saturday, Sunday, Monday, or Tuesday by the following Friday. However, in no event will you have less than three banking days to make your deposit. For example, if you were a semiweekly depositor who paid wages on Friday and the following Monday was a federal or state bank holiday, you would have until the following Thursday (instead of Wednesday) to make your deposit.

Whenever you deposit less than you're required, you run the risk of being hit with a penalty on the underpaid amount. However, as long as any shortfall does not exceed the greater of $100 or 2 percent of the amount you should have deposited, no underpayment penalty will be assessed. Monthly depositors must make up any shortfall by the due date for their quarterly return. Semiweekly depositors have until the first Wednesday or Friday (whichever is earlier) falling after the 14th day of the month following the month in which the shortfall occurred or, if earlier, the due date for their quarterly return.

FUTA taxes: Usually, you must deposit your FUTA taxes on a quarterly basis, as discussed below. However, if your quarterly FUTA tax liability is $100 or less, you don't have to deposit it. Rather, you may carry it forward and add it to your FUTA liability for the next quarter. If your liability for the last quarter of the year (plus any undeposited amounts from prior quarters) is $100 or less, you have the option of either depositing the tax or remitting it with your annual return.

Assuming your quarterly FUTA tax liability is more than $100, you must make your quarterly FUTA deposits by the last day of the month that follows the end of each quarter:

Nonbanking days. If the date that you're required to make a federal tax deposit falls on a nonbanking day, you have until the close of the next banking day to make a timely deposit. Federal and state bank holidays and weekends are considered nonbanking days. So, for example, if the due date for one of your deposits falls on a Friday that is a nonbanking day, you'll have until the end of the following Monday (assuming that isn't also a bank holiday) to make your deposit.

Meeting deposit deadlines. Because you can be assessed penalties for failing to make a tax deposit when it's due, you don't want to be late with your deposits. In general, the timeliness of a deposit is determined by the date it's received. However, a mailed deposit received after the due date will be considered timely if you can establish that it was mailed at least two days before the due date, by sending the deposit by registered or certified mail and request a return receipt.

 

Most financial institutions have a specific daily cut-off time for recording deposits. Any deposits received after that time won't be recorded until the following day. So, if you're planning to make deposits in person, be sure to arrive before the cut-off time. Also, if you're planning to make your deposits using checks drawn on a bank that is different from the one where you're making your deposits, confirm whether the depository bank will consider the check an immediate payment of your tax deposits.