What are the tax deposit rules for employers?

Employers that have withheld federal income tax from their employees' wages must deposit the taxes in a financial institution that is an authorized depository. Employers that do not have an account with an authorized depository and that do not wish to use the Electronic Federal Payment System may elect a mail-in alternative. The address for this alternative is Financial Agent, Federal Tax Deposit Processing, P.O. Box 970030, St. Louis, MO 63197. [See What are the methods of depositing employment taxes? at ¶36,660 for electronic deposit requirements.] Nonpayroll (Form 945) income tax withholding is generally subject to the same deposit rules that govern payroll withholding but must be reported and deposited separately.

Exception for deposit obligations under $2,500. Employers that have less than $2,500 in employment taxes during a quarterly return period on or after January 1, 2001, may remit their taxes with their quarterly returns, rather than separately depositing the taxes monthly Prior to this date, the threshold amount was $1,000.

Also, for deposit periods beginning on or after January 1, 2010, employers may pay their employment taxes when they timely file their quarterly returns, if their employment tax liability was less than $2,500 for the previous quarter.

Monthly v. semiweekly depositors. Under the system for depositing federal employment taxes that has been in effect since January 1, 1993, an employer is either a monthly depositor or a semiweekly depositor. The determination that an employer is a monthly or semiweekly depositor is made annually based on the employer's employment tax history.

Deposits of taxes reported on Form 941, Form 943 and Form 945 should not be combined. For example, payroll taxes that are reported on Form 941 should be separate from deposits of withheld income tax on nonpayroll items reported on Form 945.

The criteria for determining if an employer will be a monthly or semiweekly depositor is how much tax (unreduced by any advance earned income credit payments) the employer deposited in the lookback period. [See What are the rules for monthly tax depositors? at ¶36,620 and What are the rules for semiweekly tax depositors? at ¶36,630 .]

Lookback period for Form 941. The lookback period for calendar year 2009 is the third and fourth quarters of 2007 and the first and second quarters of 2008.

Lookback period for Forms 943 and 945. The lookback period for calendar year 2009 is calendar year 2007.

Adjustments made on a supplemental return filed after the due date of the return are not taken into account in determining aggregate employment taxes for the prior year.

Before the beginning of each calendar year, the IRS will notify employers whether they are monthly depositors or semiweekly depositors. New employers are treated as having employment tax liabilities of zero for any calendar quarter during which the employer did not exist.

Annual depositors. For tax years beginning on or after January 1, 2006, employers with an annual estimated employment tax liability of $1,000 or less may be able to participate in the Form 944 Program (see ¶36,680 ), which would allow them to pay their taxes annually with their Form 944.

Lookback period for Form 944. The lookback period is the second calendar year preceding the current calendar year. Thus, the lookback period for 2009 is calendar year 2007.

A Form 944 Program participant may not realize that its annual employment tax liability exceeded $1,000 until it files its Form 944 on January 31 of the following year. These employers can avoid the penalty for failing to make a timely monthly deposit of the January taxes as long as they fully pay their January employment taxes by March 15.