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.
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Victims of hurricanes Harvey, Irma, and Maria get relief from Congress. They can take casualty losses from the storms even if they don’t itemize. They’re able to deduct uninsured personal losses more than a $500 threshold without regard to the 10%-of-AGI offset that generally applies to the deduction. 2016 income can be used to figure the 2017 earned income tax credit. The same applies for the child tax credit. This will prevent a cut in these tax breaks for lower-incomers whose jobs have been suspended or lost due to the hurricanes.
The 10% penalty on pre-age 59½ payouts from retirement accounts is waived, if the IRA or retirement plan withdrawals are not greater than $100,000. The income tax due on such distributions can be spread over a three-year period. Amounts recontributed to the plan or IRA during that span will be treated as rollovers, and tax paid on those amounts can be recovered by filing an amended Form 1040.
Victims can borrow more from company retirement plans such as 401(k)s, up to the lesser of $100,000 or 100% of the account. Loan repayments can be deferred. The 50%-of-AGI limitation on charitable donations is suspended for any cash donations to qualified charities that aid victims of Harvey, Irma and Maria.
Corporations can fully deduct cash donations for hurricane relief. The usual 10% of taxable income limit does not apply to such contributions. There’s a special break for hurricane-affected firms that keep paying workers even though business operations have been suspended in the wake of the storms. They get a 40% tax credit for up to $6,000 of wages paid to each idle employee.+���
IRS’s simplified per diems for lodging, meals, and incidentals are going up. In high-cost localities, employees can get up to $284 each day free of tax. In other areas, their daily stipend is capped at $191. Both amounts are up $2.
Businesses using this method have the choice to use these higher rates as of Oct. 1 or wait until Jan. 1, 2018. Firms can opt instead to use these higher rates as of Oct. 1 or wait until Jan. 1, 2018. Firms can opt instead to use federal per diems separately figured for hundreds of cities.
No change to the rates for meals and incidentals only, this stayed at $68 per day in high-cost areas and $57 in other locations. Self-employed individuals on travel can use these rates in lieu of keeping receipts, but their lodging expenses must be sustained separately. They cannot use the full $284/$191 per diems. The per diem rate solely for incidentals is also unchanged at $5 a day.
A Senate proposal on worker classification is drawing praise from business.
The bill from Sen. John Thune (R-SD) would provide a new safe harbor based on three criteria that, if met, would qualify workers as independent contractors:
You won’t automatically be audited for having above-average deductions; however, if your write-offs are excessively large, your audit risk can go up because that is a key factor in the Revenue Service’s return selection process.
Here’s an example where taking large charitable deductions raised a red flag with the agency. A couple was audited after they claimed total charitable write-offs of $142,250 for property donations to Goodwill. Because they couldn’t prove the value of the items donated, the Tax Court disallowed all but $250 of their deduction and slapped them with the 20% penalty for negligence (Ohde, TC Memo. 2017-137).
Charitable deductions can sometimes be lost if conditions are attached by the donor. In this case, the owner of a run-down movie theater wanted to transfer it in a bargain sale to an unrelated, newly formed nonprofit. Since the transferee hadn’t yet received its tax exemption, the building’s owner arranged a bargain sale with another charity but agreed that it could direct a subsequent conveyance to the ultimate transferee. This transfer restriction included in the contract of sale caused the Tax Court to rule that the owner didn’t relinquish dominion and control over the building and that no charitable gift was made (Fakiris, TC Memo. 2017-126).
Worker classification remains a priority. The Internal Revenue Service continues to seek back taxes and penalties from firms that wrongly treat workers as contractors. Unreported or underreported employment taxes make up a big chunk of the overall federal tax gap. The Labor and Justice Departments, along with Individual States also have vital roles to play in ensuring that workers are properly classified by the businesses they work for.
The stakes have always been high, lost taxes for federal and state governments and fewer benefits for workers who are improperly treated as contractors. The importance is magnified with the growth of freelance service gigs. Freelance gigs such as Uber, Rover, Grubhub and Fiverr are making up a growing portion of the part time economy.
To classify workers, the IRS uses three tests, each made up of multiple factors.
The Behavioral Test focuses on whether the company controls or has the right to control what the worker does and how to do the job. Key factors for employee status include instructions about performing the work, evaluation criteria and training.
The Financial Test looks at who controls the economics of the worker’s job. Being able to work for multiple firms and providing your own tools needed for the job are indicative of independent contractor status. Some factors favoring employee status are eligibility for reimbursement of travel costs and payment based on hours worked.
The Type-of-Relationship Test examines how the parties perceive each other. Providing paid vacation and retirement benefits indicates a worker is an employee, as does hiring to provide services indefinitely rather than for a specific time. Written language stating the worker is an independent contractor isn’t determinative.
Aberdare Business Solutions offers a variety of Lunch & Learn Seminars or on-site seminars regarding the above topics. Additionally, we include information pertaining to the Department of Labor and the Texas Workforce Commission. If you are interested in attending a seminar or having us speak at your company or association please contact our office at 281.599.3380 or firstname.lastname@example.org
The cost to become a dog groomer doesn’t qualify for an education tax break through The American Opportunity Tax Credit. The couple in the case has a daughter who after taking one class at a local community college, decided on a different track and enrolled in a dog grooming program with a company aptly named Canine Clippers.
Only tuition paid to accredited postsecondary institutions is eligible for the AOTC, and the parents provided no evidence that Canine Clippers met that standard or that their daughter attended at least half-time (Martin, TC Summ. Op. 2017-73).
IRS is on the prowl for filers who claim large charitable deductions, as a big-game hunter found out after he took a $1.45 million write-off for animal hides, skulls, horns, and other hunting specimens he donated to charity. He claimed the items he gave were of museum quality, with no market comparables, and should be valued at their estimated replacement cost.
The Tax Court disagreed, saying the specimens were commodities, not collectibles, and that fair market value is based on market prices of similar items. The Court allowed a $163,000 deduction, the figure determined by the Service’s appraiser (Gardner, TC Memo. 2017-165).