Payroll Tax Deposit Requirements

The federal and state governments require most employers to withhold, deposit, report and pay social security taxes, income taxes, and unemployment taxes.

This section tells you about the payroll tax responsibilities of an employer and will summarize the requirements for withholding, reporting and paying taxes. The Internal Revenue Service's Circular E, "Employer's Tax Guide,” contains the federal income tax withholding tables and complete information on these responsibilities.

Every new employee must complete a form W-4 or W-4A, I-9 and a state exemption certificate within three days of commencement of work. These forms verify that the employee is entitled to work in the United States, and how many exemptions he or she may claim for withholding purposes.

Wages paid to an employee are subject to social security (OASDI and Medicare) taxes. The wage base and tax rates are adjusted annually and are published in the IRS's Circular E.

There are several methods available to compute the income tax withholding. The most common one is the wage bracket tables enclosed in the IRS's Circular E and similar tables provided by each state.

IRS and the state will send you a coupon book preprinted with your name, address, and identification number. These coupons are to be used to pay the taxes.

The federal tax coupon is used to deposit the employment (and other federal) taxes at you local bank. IRS requires that your local bank receive these taxes rather than having them sent directly to the IRS.

In general, you must deposit backup withholding, income tax withheld, and both the employer and employee social security and Medicare taxes (minus and advance EIC payments) that total $500 or more by delivering or mailing a check, money order, or cash to an authorized financial institution or Federal Reserve bank.

SUMMARY OF DEPOSIT RULES FOR SOCIAL SECURITY TAXES AND WITHHELD INCOME TAX

Under the rules effective January 1, 1993, you are either a monthly depositor or a semi-weekly depositor. However, if you accumulate taxes of $100,000 or more at any time during the year, you are subject to the $100,000 one-day deposit rule. In November of each year, the IRS will notify you to inform you whether you are a monthly or semi-weekly depositor for the coming calendar year. If you do not receive notification, you must determine your own deposit status. If you are a new employer, you are a monthly depositor for the year in which you first become an employer.

You are a Monthly Depositor if the total tax reported on forms 941 for the four quarters in the lookback period is $50,000 or less. (The lookback period consists of the four quarters beginning July 1 of the second preceding year and ending June 30 of the prior year. For 1993, the lookback period is July 1, 1991, through June 30, 1992.) As a Monthly Depositor, you must deposit the employment taxes and the taxes withheld on salary and wage payments made during a calendar month by the fifteenth day of the following month.

You are a Semi-Weekly Depositor if the total tax reported on forms 941 for the four quarters in the lookback period is more than $50,000. If you are a Semi-Weekly Depositor, you must deposit the employment taxes and the taxes withheld on salary and wage payments on Wednesday and/or Friday, depending on which day of the week you make the salary and wage payments. If the payday is Wednesday, Thursday and/or Friday, the taxes must be deposited by the following Wednesday. If the payday is Saturday, Sunday, Monday and/or Tuesday, the taxes must be deposited by that Friday.

If you accumulate taxes of $100,000 or more on any day, you must deposit the taxes by the close of the next banking day.

A more detailed explanation of these rules can be found in IRS's Circular E, Employer's Tax Guide. Always refer to the most current issue of this guide for the most up to date rules and withholding tables.