Depositing Federal Payroll Taxes

The employer is required to deposit the federal payroll taxes (amounts withheld from employees and the employer’s matching amount) to the U.S. Treasury by means of an electronic funds transfer (EFT). Generally, this is done using EFTPS which is a free service of the U.S. Treasury.

The federal payroll taxes must be sent via an electronic funds transfer by the dates described in IRS Publication 15. The dates depend upon the current amount of the federal payroll taxes and also the employer’s amount during a previous one-year period. Here is part of the criteria regarding the current amount of federal payroll taxes:

  • If the amount is $100,000 on any day, the money must be transferred within one day.

  • If the amount is more than $50,000 but less than $100,000, the money must be transferred semiweekly (twice a week). For example, if the payday is on Wednesday, Thursday, and/or Friday, the payroll taxes must be deposited by the following Wednesday. If the payday is on Saturday, Sunday, Monday, and/or Tuesday the payroll taxes must be deposited by the following Friday.

  • If the amount is $50,000 or less, the money must be transferred monthly. However, if the amount is less than $2,500 for the quarter, under certain circumstances you may be able to pay with a timely filed quarterly Form 941. See IRS Publication 15 for more information.

Failure to deposit the amount owed on the required date may result in severe penalties.

IRS Form 941, Employer’s Quarterly Federal Tax Return

IRS Form 941, Employer’s Quarterly Federal Tax Return is filed quarterly by companies who have employees. On Form 941 the employer reports the amounts for the following items:

  • Wages, salaries, etc. paid to employees
  • Tips the employees reported
  • Federal income taxes withheld from employees
  • Social Security and Medicare taxes (both employee withholdings and employer’s share)
  • Qualified small business payroll tax credit for increasing research
  • Adjustments

Small employers could be granted permission to file the annual Form 944 but must have received notification from the IRS.

Form 941 is due by the last day of the month following the calendar quarter. In other words, Form 941 covering the months of January, February, and March must be filed by April 30. The second quarter report must be filed by July 31, and so on. There are significant penalties for not filing these required quarterly reports by their due dates.

The federal income taxes withheld from employees plus the employee’s and employer’s Social Security and Medicare taxes must be deposited electronically according to due dates discussed in the previous section entitled “Depositing Federal Payroll Taxes”.

The IRS has Form 941 with instructions (and all other IRS forms) in PDF format available on its website

Outsourcing Payroll Processing

Many companies choose to outsource the processing of payroll to large payroll processing firms (ADP, Paychex, and others), banks, accounting firms, etc.

The services of payroll processors can vary and the company using the service may be able to select the features it will use. Some of the common features include:

  • Preparing the employee paychecks or processing direct deposits based on data (hours worked, etc.) furnished by the company
  • Preparing the payroll summaries (by department, total company)
  • Preparing and filing tax reports
  • Preparing IRS Form W-2 for each employee and transmitting them to government agencies
  • Remitting payroll taxes to government agencies

To learn more about outsourcing payroll processing including risks and responsibilities see “Third-Party Payer Arrangements” found in IRS Publication 15, Employer’s Tax Guide.