Deposit Requirements for Employment Taxes
There are two deposit schedules – monthly or semiweekly – for determining when you deposit social security and Medicare taxes and withheld federal income tax. These schedules tell you when a deposit is due after a tax liability arises (for example, when you have a payday). Before the beginning of each calendar year, you must determine which of the two deposit schedules you must use. The deposit schedule you must use is based on the total tax liability you reported during a lookback period . Your deposit schedule isn’t determined by how often you pay your employees or make deposits. See Application of Monthly and Semiweekly Schedules, later.
These rules don’t apply to federal unemployment (FUTA) tax. See the Instructions for form 940 for information on depositing FUTA tax.
Deposit rules for Form 941. Your deposit schedule (monthly or semiweekly) for form 941, Employer’s QUARTERLY Federal Tax Return, is based on the total tax liability you reported on Forms 941 during a four-quarter lookback period discussed below under Lookback period for Form 941.
Instead of making deposits during the current quarter, you can pay your total Form 941 tax liability when you timely file Form 941 if:
1. Your total Form 941 tax liability for either the current quarter or the preceding quarter is less than $2,500 and
2. You don’t incur a $100,000 next-day deposit obligation during the current quarter.
If you’re not sure your total liability for the current quarter will be less than $2,500, and your liability for the preceding quarter wasn’t less than $2,500, make deposits using the semiweekly or monthly rules so you won’t be subject to failure to deposit penalties. For more information about deposit rules for Form 941, see Pub. 15.
Deposit rules for Forms 943, 944, 945, and CT-1. Generally, the deposit rules for form 941 also apply to tax liabilities for Form 943, Employers Annual Federal Tax Return for Agricultural Employees; Form 944, Employer’s ANNUAL Federal Tax Return; Form 945, Annual Return of Withheld Federal Income Tax; and Form CT-1, Employer’s Annual Railroad Retirement Tax Return. However, because Forms 943, 944, 945, and CT-1 are annual returns, the rules for determining your deposit schedule apply to a calendar year rather than a calendar quarter. See Lookback period for annual returns below. For more information about deposit rules for annual returns, see Pub. 15 (for forms 944 and 945), Pub. 51 (for form 943), and the Instructions for Form CT-1.
Federal tax deposits must be made by electronic funds transfer (EFT). You must use EFT to make all federal tax deposits. Generally, an EFT is made using Electronic Federal Tax Payment System (EFTPS). If you don’t want to use EFTPS, you can arrange for your tax professional, financial institution, payroll service, or other trusted third party to make electronic deposits on your behalf. Also, you may arrange for your financial institution to initiate a same-day wire payment on your behalf. EFTPA is a free service provided by the Department of Treasury. Services provided by your tax professional, financial institution, payroll service, or other third party may have a fee.
For more information on making federal tax deposits, see section 11 or Pub.15. To get more information about EFTPS or to enroll in EFTPS, visit www.eftps.gov or call 1-800-733-4829 (TDD). Additional information about EFTPS is also available in Pub. 966.
Depositing on time. For EFTPS deposits to be on time, you must submit the deposit by 8 p.m. Eastern time the day before the date the deposit is due. If you fail to submit an EFTPS deposit on time, you may use the same-day wire payment option discussed above.
Lookback period for Form 941. Your deposit schedule for a calendar year is determined from the total taxes reported on your Forms 941 in a four-quarter lookback period. The lookback period begins July 1 and ends June 30, as shown in the following chart. If you reported $50,000 or less of Form 941 taxes for the lookback period, you’re a monthly schedule depositor; if you reported more than $50,000, youre a semiweekly schedule depositor. The lookback period for a 2017 Form 941 filer who filed Form 944 in either 2015 or 2016 is calendar year 2015.
Form 941 Lookback Period for Calendar year 2017
Lookback period for annual returns. For annual returns (Forms 943, 944, 945, CT-1), the lookback period is the calendar year preceding the previous year. For example, the lookback period for 2017 is 2015.
Monthly Deposit Schedule
You’re a monthly schedule depositor for a calendar year if the total tax reported for your lookback period was $50,000 or less.
Under the monthly deposit schedule, deposit accumulated taxes on payments made during a calendar month by the 15th day of the following month.
New employers. Your tax liability for any quarter in the lookback period before the date you started or acquired your business is considered to be zero. Therefore, you’re a monthly schedule depositor for the 1st year you’re an employer. However, see the $100,000 Next-Day Deposit Rule, later.
Semiweekly Deposit Schedule
You’re a semiweekly schedule depositor for a calendar year if the total taxes during your lookback period were more than $50,000.
Semiweekly deposit period spanning two return periods. If a return period ends on a day other than Friday or Tuesday, taxes accumulated on the days during the return period just ending are subject to one deposit obligation, and taxes accumulated on the days covered by the new return period are subject to a separate deposit obligation. For example, if a return period ends on Thursday, taxes accumulated on Wednesday and Thursday are subject to one deposit obligation and taxes accumulated on Friday are subject to separate obligation. Separate deposits are required because two different return periods are affected.
Deposits Due on Business Days Only
If a deposit is due on a day that isn’t a business day, the deposit is considered to have been made timely if it is made by the close of the next business day. A business day is any day other than a Saturday, Sunday, or a legal holiday. For example, if a deposit is due on a Friday and Friday is a legal holiday, the deposit will be considered timely if it is made by the following Monday (if that Monday is a business day). The term “legal holiday” means any legal holiday in the District of Columbia. For a list of legal holidays, see Pub. 15 or Pub. 51.
Semiweekly schedule depositors have at least 3 business days to make a deposit. That is, if any of the 3 weekdays after the end of a semiweekly period is a legal holiday, you’ll have an additional business day to deposit for each day that is a legal holiday. For example, if a semiweekly schedule depositor accumulated taxes for payments made on Friday and the following Monday is a legal holiday, the deposit normally due on Wednesday may be made on Thursday. This allows 3 business days to make the deposit.
Application of Monthly and Semiweekly Schedules
The terms “monthly schedule depositor” and “semiweekly schedule depositor” don’t refer to how often your business pays its employees or even to how often you must make deposits. The terms identify which set of deposit rules you must follow when an employment tax liability arises. The deposit rules are based on the dates wages are paid; not on when employment tax liabilities are accrued.
Monthly schedule example. Pine Co. has a monthly deposit schedule. It paid wages each Friday during July, but didn’t pay any wages during August. Under the monthly schedule, Pine Co. must deposit the combined tax liabilities for the July paydays by August 15. Pine Co. doesn’t have a deposit requirement for August (due by September 150 because no wages were paid and therefore, it didn’t have a tax liability for the month.
Semiweekly schedule example. Maylen Smith, who has a semiweekly deposit schedule, pays wages once each month on the last Friday of the month. Although Maylen has a semiweekly deposit schedule, she will deposit just once a month because she pays wages only once a month. The deposit, however, will be made under the semiweekly deposit schedule as follows: Maylen’s tax liability arises when she pays wages on April 28, 2017 (Friday); the liability must be deposited by May 3, 2017 (Wednesday). Under the semiweekly deposit schedule, liabilities for wages paid on Wednesday through Friday must be deposited by the following Wednesday.
$100,000 Next-Day Deposit Rule
If you accumulate a tax liability of $100,000 or more on any day during a deposit period, you must deposit the tax by the close of the next business day, whether you’re a monthly or semiweekly schedule depositor. The deposit period for monthly schedule depositors is a calendar month. For semiweekly schedule depositors, the deposit periods are Wednesday through Friday and Saturday through Tuesday.
For the $100,000 next day deposit rule, don’t continue accumulating tax liabilities after the end of a deposit period. For example, if a semiweekly schedule depositor has accumulated a liability of $95,000 on a Tuesday (of a Saturday through Tuesday deposit period) and accumulated $10,000 liability of a Wednesday, the $100,000 next day deposit rule doesn’t apply. Therefore, $95,000 must be deposited by Friday and $10,000 by the following Wednesday.
In addition, once you accumulate at least $100,000 in a deposit period, stop accumulating at the end of that day and begin to accumulate anew the next day. For example, Fir Co. is a semiweekly depositor. On Monday, Fir Co. accumulates taxes of $110,000 and must deposit this amount on Tuesday, the next business day. On Tuesday, Fir Co. accumulates additional taxes of $30,000. Because the $30,000 isn’t added to the previous $110,000 and is less than $100,000, Fir Co. must deposit the $30,000 by Friday, following the semiweekly deposit schedule.
If you’re a monthly schedule depositor and accumulate a $100,000 tax liability on any day, you become a semiweekly schedule depositor on the next day and remain so for at least the rest of the calendar year and for the following calendar year.
Adjustments and the Lookback Rule
Determine your tax liability for the lookback period (four-quarter lookback period for Form 941 and calendar-year lookback period for Form 943, Form 944, Form 945, and Form CT-1) based on the tax liability as originally reported. If you later made adjustments to correct errors on those returns by filing a Form 941-X, Form 943-X, Form 944-X, Form 945-X or Form CT-1X, these adjustments don’t affect the amount of the employment tax liability for the lookback rule.
Example of adjustments and the lookback rule for Form 941. An employer originally reported a tax liability of $45,000 for the four quarters in the lookback period ending June 30, 2016. The employer discovered during January 2017 that the tax during one of the lookback period quarters was understated by $10,000 and corrected this error with an adjustment on Form 941-X. This employer is a monthly schedule depositor for 2017 because the lookback period tax liabilities are based on the amounts originally reported and they didn’t exceed $50,000. The $10,000 adjustment doesn’t affect the amount of tax liability for the lookback rule.
Accuracy of Deposits Rule
You’re required to deposit 100% of your tax liability on or before the deposit due date. However, penalties won’t be applied for depositing less than 100% if both or the conditions are met.
1. Any deposit shortfall doesn’t exceed the greater of $100 or 2% of the amount of taxes otherwise required to be deposited.
2. The deposit shortfall is paid or deposited by the shortfall makeup date as described below.
Makeup Date for Deposit Shortfall
Monthly schedule depositor. Deposit or pay the shortfall with your return by the due date of the return. You may pay the shortfall with your return even if the amount is $2,500 or more.
Semiweekly schedule depositor. Deposit by the earlier of:
1. The first Wednesday or Friday that falls on or after the 15th of the month following the month in which the shortfall occurred, or
2. The due date of your return (for the return period of the tax liability). Form 941, Form 943, Form 944, and Form 945 are due by the last day of the month following the period for which the returns were made. Form CT-1 is due the last day of the second month following the calendar year.
For example, if a semiweekly schedule depositor has a deposit shortfall during June 2017, the shortfall makeup date is July 19, 2017 (Wednesday). However, if the shortfall occurred on the required April 5, 2017 (Wednesday) deposit due date for the March 31, 2017 (Friday) pay date, the return due date for the March 31 pay date (may 1) would come before the May 17 (Wednesday) shortfall makeup date. In this case, the shortfall must be deposited by May 1.
To understand these tax deposits or to understand more leverage the expertise of our trusted Aberdare Business Solutions advisors.
information or a business evaluation please call our office at 281.599.3380 or
Social Security – The Social Security wage base increases in 2017 to $127,200, up $8,700 from 2016’s cap. The Social Security tax rate on employers and employees remains at 6.2%. The employer’s share of Medicare tax stays at 1.45% of all pay. The employees’ share is 1.45% too, but they also pay the 0.9% Medicare surtax on wages that exceed $200,000 for singles and $250,000 for married couples. This extra levy doesn’t hit employers. Self-employeds are also subject to the surtax.
Social Security recipients see a tiny 0.3% hike in their benefits in 2017. The earnings test limits head up, too. Individuals who turn 66 in 2017 do not lose any benefits if they earn $44,880 or less before they reach that age. People who are age 62 through 65 by the end of 2017 can make up to $16,920 before they lose any benefits. There is no earnings cap once a beneficiary turns 66. The amount needed to qualify for coverage climbs to $1,300 a quarter. So earning $5,200 anytime during 2017 will net the full four quarters of coverage.For questions pertaining to your social security withholding or taxable earnings contact the professionals at Aberdare Business Solutions. You can reach us Monday through Friday at 281-599-3380 or send us an email at firstname.lastname@example.org
Can you rely on IRS’s frequently asked questions as legal authority? Generally, no the agency says privately.
There are some exceptions, such as in cases where the FAQ’s have been published in the Internal Revenue Bulletin, or when the Service otherwise indicates that the items constitute formal authority and can be used to sustain a legal position.
Otherwise, they are informal guidance, similar to statements found in IRS publications and private letter rulings. If you need IRS review of findings or additional explanations of IRS rules and regulations please contact the professionals at Aberdare Business Solutions. We are available to assist in making sense of the IRS paperwork and making sure you understand notices that you may be recieving. Call us today at 281-599-3380.
Here are a few tips to nurture your common sense:
Dealing with Disasters – With hurricane season approaching, think about disaster preparedness. IRS has some suggestions.
· Safeguard tax records in a protected place.
· Scan important papers into electronic format and make sure to have backup copies.
· Take pictures or videos of the content of your home or business premises, and store images off-site.
Aberdare Business Solutions has an updated RECORDS RETENTION GUIDE. If you would like one sent to you please contact the professionals in our office and we will be happy to mail or email one for your business and personal records. Call Us Today!! 281-599-3380.
Social Security Numbers and Employee Name Reporting Errors
When there is a mismatch in the employee name and/or Social Security number (SSN) as reported on Forms/N-2, compared to records at the Social Security Administration, the wage information reported with the mismatched name posted to suspense, any employee with a non-matching SSN on Form W-2 will lost benefits to which he or she is entitled.
In the case of information returns, such as Form 1099-MISC, under present rules the employer can establish “reasonable cause” for failure to match names and tax identification numbers (TINS), by presenting a properly completed From W-9 (Request for Taxpayer Identification Number and Certification). However, employers do you have an equivalent document to prove due diligence for Form W-2 reporting. Form W4 (Employee’s Withholding Allowance Certificate) has been suggested for this purpose, but there is no current requirement that every employee must file Form W-4 with the employer.
Under the Internal Revenue Code, the penalty for reporting invalid SSN’s on Form W-2 without reasonable cause, may be imposed if the number of incorrectly reported SSN’s for a tax year exceeds the greater of 1- or 0.5% of the information returns required to be filed. The maximum penalty under Code section 6722 is $50 for each incorrect payee statement, up to a maximum aggregate penalty of $100,000 per filer for the tax year.
“Reasonable Cause” Had Been Clarified As An Employer Defense
Employers penalized for putting an incorrect SSN on a Form W-2 are now helped by a seemingly more lenient IRS view of “reasonable cause,” based on the employee’s failure to provide a correct SSN. Specifically, the IRS requires only three things for the “reasonable cause” defense to apply:
· that the employer received an SSN from the employee
· that the employer relied on that number in good faith, entering it into its payroll records and putting it on the employee’s Form W-2; and
· that the employer later received a penalty notice from the IRS notifying the employer that the employee’s SSN was incorrect
In practical terms, the IRS says, “reasonable care” by the employer, justifying waiver by the IRS of the penalty, could work as follows. The employer would have to show that it made an initial request for the employee’s SSN, normally done routinely when the employee begins working for the employers; and that the employer indeed received the SSN from the employee, usually on Form W-4. The employer would not be required to make a further solicitation for the employee’s SSN unless the IRS notifies the employer that the employee’s SSN is incorrect, for example by means of a penalty notice. An employer which receives such a notice may be required to make up to two annual requests after receiving the notice.
If you need assistance with matters relating to 1099's or W2 Social Security Match issues please contact the professionals at Aberdare Business Solutions at email@example.com or 281.599.3380,
Tax Laws Small Business Owners Should Know About
When it comes to taxes, there is no such thing as being over prepared. Unfortunately for busy small business owners, keeping up with the rapidly changing federal and state tax laws can feel like a burden. However, it's crucial to pay attention to your tax responsibilities in order to maximize deductions and prevent liability problems in the future. Whether you hire an outside agency or have an internal accountant helping sort out your finances, here are four important things for small business owners to know about federal income taxes in 2017.
1.) Affordable Care Act: Any business owner who is defined as an applicable large employer (ALE), under the Employer Shared Responsibility Provision (ESR) of the Affordable Care Act (ACA), must include a detailed reporting of healthcare coverage. Businesses with fewer than 50 full-time equivalent employees are exempt from penalties (also known as the Employer Shared Responsibility Payment or "Play or Pay" penalty) faced by larger employers that do not offer coverage. Additionally, you may be eligible for the Small Business Health Care Tax Credit if you cover at least 50% of your full-time employee's premium costs and you have fewer than 25 full-time equivalent employees.
2.) Bonus Depreciation: Under the PATH act, bonus depreciations will expire in 2020. Bonus depreciations are a tax break that allow businesses to deduct 50% of the costs for new capital equipment, such as hardware or software, when it is purchased. However, the percentage will be decreased each year until it expires. In 2017, the deduction will remain at 50%. In 2018, it will be decreased to 40%, and in 2019, it will be decreased to 30%. It may be in your business' best interest to invest in new equipment this year to take advantage of this deduction.
3.) Work Opportunity Tax Credit: The Work Opportunity Tax Credit incentivizes employers to hire certain target individuals, including military veterans, who have been out of work for 27 weeks or more. Through the PATH Act, this credit has been extended through 2019. Eligible businesses can receive up to 40% of qualified first year wages up to $6,000 through this credit.
4.) R&D Tax Credit: A change through the PATH ACT gives businesses that make less than $50 million annually and invest heavily in research the opportunity to offset the R&D credit against the alternative minimum tax (AMT). Businesses that specialize in areas like construction, software, aerospace subcontracting, bio-tech, and manufacturing can leverage this if they have engineers, scientists or product development employees on staff. Section 121(c) of the PATH Act also adds a new section to IRC 41 stating that qualified small businesses will be able to elect to use part of the current-year credit, all of the current-year credit, or even a carryforward credit against payroll tax. This will allow smaller businesses that may not have a lot of regular income tax liability to still take advantage of the R&D credit benefit.
Save yourself time and stress this tax season by working with our trusted Aberdare Business Solutions advisers. For more information or a business evaluation please call our office at 281.599.3380 or email firstname.lastname@example.org
Even though we are mid way through the tax year, it never hurts to just brush up on a few of the 2017 tax changes for the year and see if they impact you. This gives you 6 months to make any adjustments necessary, to bring you to a good place by the end of the year.
****The Social Security wage base increases in 2017 to $127,200, up $8,700 from 2016’s cap . The Social Security tax rate on employers and employees remains at 6.2%. The employer’s share of Medicare tax stays at 1.45% of all pay. The employees share is 1.45%, too, but they also pay the 0.9% Medicare surtax on wages that exceed $200,000 for singles and $250,000 for married couples. This extra levy doesn’t hit employers. Self-employeds are also subject to the surtax.
Social Security recipients see a tiny 0.3% hike in their benefits in 2017. The earnings test limits head up, too. Individuals who turn 66 in 2017 do not lose any benefits if they earn $44,880 or less before they reach that age. People who are age 62 through 65 by the end of 2017 can make up to $16,920 before they lose any benefits. There is no earnings cap once a beneficiary turns 66. The amount needed to qualify for coverage climbs to $1,300 a quarter. So earning $5,200 anytime during 2017 will net the full four quarters of coverage.
**** Businesses that hire the long-term unemployed get a tax credit . The work opportunity tax credit is expanded to cover employers that hire people who’ve been out of work for 27 weeks or more and received unemployment benefits. The 40% credit on the first $6,000 in wages applies for those beginning work after 2015.
**** The 2017 standard mileage rate for business driving falls to 53 -1/2 cent a mile, a 0.5 cent drop . The rate decreases to 17 cent a mile for travel for medical purposes and job-related moves. But the rate for charitable driving remains at 14cent per mile.
If you have questions or would like to arrange a meeting to see how these changes impact your business please do not hesitate to contact our office to set up a meeting or conference call with one of our professionals. Aberdare Business Solutions 281.599.3380
Combating payroll tax fraud is a high priority for IRS and the Justice Dept. Department Of Justice is pursuing an increasing number of civil injunctions against businesses, and their officers, that have repeatedly failed to deposit taxes withheld from workers.
These serial offenders must timely pay their employment taxes and notify the Service after making payroll deposits. They can’t transfer assets or establish a new business until the bill is fully paid. There are more criminal prosecutions of willful violators, too.
If you need assistance processing your payroll or calcuating your payroll taxes contact the payroll professionals at Aberdare Business Solutions, where are ready to assist. 281.599.3380