Federal Payroll Tax Deposits

What are FTDs and why are they important?

Federal Tax Deposits (FTDs) for Form 941 are made up of withholding taxes or trust funds (income tax and Federal Insurance Contributions Act (FICA) taxes, which are Social Security and Medicare held in trust), that are actually part of your employee's wages, along with the employer's matching half of FICA. FTDs for Form 940 are taxes paid by the employer to provide for unemployment compensation to workers who have lost their jobs. Only the employer pays FUTA tax; it is not deducted from the employee's wages. These taxes need to be paid as they become due in order to avoid penalties. If you have a deposit requirement, you may be able to choose one of two deposit methods: Electronic Federal Tax Payment System (EFTPS) or using the FTD coupons (Form 8109) if you are not using, or required to use, the EFTPS.

Now, let's look at the easy ABCs of FTDs.
A Who must make deposits?
Employers may have two separate employment tax deposits:

* Employers filing Form 941, Employer's Quarterly Federal Tax Return, with $2,500 or more tax due per quarter
or
* Employers filing Form 940, Employer's Annual Federal Unemployment Tax Return (FUTA), with over $500 tax due per quarter.

B When to make deposits?

If you have a deposit requirement for Form 940, make the deposit by the last day of the first month after the quarter ends.

If you have a deposit requirement for Form 941, there are two EASY ways to remember:

* Make a deposit the same day you pay your employees.
or
* Make the deposit before the due date.

Form 941 Deposit Due Date. If you are a new employer and have never filed 941 forms, you are a Monthly Schedule Depositor for the first calendar year of your business unless you are a special exception to the rule. Monthly Schedule Depositors should deposit taxes from all of their paydays in a month by the 15th of the next month, even if they pay wages every week.

Employers with prior payrolls and taxes of $2,500 or more per quarter must determine if they make either Monthly Schedule Deposits, or Semiweekly Schedule Deposits.

This determination is based on your Form 941 taxes during a four-quarter Lookback Period.

1. Identify your Lookback Period.
Your Lookback Period for Calendar Year 2008
*  July 1 to September 30, 2006 3rd Quarter
*  October 1 to December 31, 2006 4th Quarter
*  January 1 to March 31, 2007 1st Quarter
*  April 1 to June 30, 2007 2nd Quarter
*  Calendar Year January 1 to December 31, 2008
2. Add the total taxes reported during the Lookback Period.
3. Determine your deposit schedule.
If the total taxes you reported in the Lookback Period were: Then you are a:
$50,000 or less Monthly Schedule Depositor
More than $50,000 Semiweekly Schedule Depositor

Monthly Schedule Depositors

* Deposit each month's taxes by the 15th day of the following month (for example, taxes from paydays during July are deposited by August 15).

Semiweekly Schedule Depositors

* For wages paid Saturday, Sunday, Monday, or Tuesday, deposit by the following Friday.
* For wages paid Wednesday, Thursday, or Friday, deposit by the following Wednesday.

Exception!

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 next banking day, whether you are a monthly or semiweekly schedule depositor. For more information about the $100,000 One-Day Rule and the applicable deposit period, refer to Publication 15, Circular E, Employer's Tax Guide, Depositing Taxes.

Remember!

* Deposit rules are based on when wages are paid, not earned. For example, Monthly Schedule Depositors with wages earned in June, but paid in July, deposit August 15.
* If the due date for a deposit falls on a federal or state bank holiday, or on a Saturday or Sunday, the deposit is considered timely if it is made by the close of the next banking day.

C How are deposits made?

Federal Tax Deposits (FTDs)

Making Federal Tax Deposits is a process most businesses must do throughout the year. Pre-printed coupon books are provided to some business customers but they don’t last forever and occasionally a blank coupon may be required to make a deposit. Here are some options for making payments.

If you have a deposit requirement, you may be able to choose one of two deposit methods:

*You may be required, or prefer, to use the Electronic Federal Tax Payment System (EFTPS). EFTPS is not mandatory for most small business employers. The IRS encourages non EFTPS required employers to take advantage of EFTPS to avoid common errors and automate the payment process. EFTPS is always the preferred method to make payroll deposits. EFTPS is fast, secure and available 24 hours a day, 7 days a week. Check out the most frequently asked questions about EFTPS: Publication 966, Choices for Paying ALL Your Federal Taxes (PDF).
*If you are not required to use EFTPS and do not choose take advantage of EFTPS, mail or deliver Form 8109, Federal Tax Deposit Coupon, with your payment to an authorized financial institution or if you prefer, you may mail your coupon and payment to: Financial Agent, Federal Tax Deposit Processing, P.O. Box 970030, St. Louis, MO 63197. Make your check or money order payable to Financial Agent.

Making Deposits with FTD Coupons

*Verify your name and Employer Identification Number (EIN) on the coupon.
*Use a separate coupon for each type of tax deposited, for example, one for Form 941, Employer's Quarterly Federal Tax Return (PDF), and another for Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return (PDF).
*Darken only one box for the correct type of tax and only one box for the correct tax period.
*Use FTD coupons only for current taxes, not for delinquent taxes.
*If you are a new employer and received an EIN after January 2004 most likely you are already pre-enrolled in the Electronic Federal Tax Payment System (EFTPS) as part of our express enrollment (PDF) initiative for new businesses. You should have received a conformation package with an EFTPS PIN and instructions on how to activate your EFTPS enrollment, and one FTD coupon. If you want to make additional payments by check you must order additional coupons. Allow 5-6 weeks for coupons to arrive by mail. The number to call for ordering coupons is (800) 829-4933.
*For more information on Express Enrollment for new businesses refer to IRS Publication 4275 (PDF) found on IRS.gov.
*The IRS tracks the number of coupons used and sends more automatically. If you are a new employer you will not automatically receive subsequent coupons until after you place your initial order.
*For employer’s mailing address changes, complete and file both Form 8109-C, FTD Address Change, found in the front of the coupon booklet, and Form 8822, Change of Address Form. Filing Form 8109-C updates the mailing address only for the purpose of delivery of tax deposit coupons. Form 8822 updates the mailing address on IRS records for all other tax purposes.
*Employers who want new coupon booklets sent directly to their payroll provider or tax practitioner should complete and file Form 8109-C to show the payroll provider or practitioner’s mailing address. Filing Form 8109-C will not change the address of record with IRS.

Caution:

If you have a deposit requirement, do not send tax payments with your tax return directly to the IRS. If you use the FTD coupon method, your deposit must go to your authorized bank. Contact your local bank to obtain information concerning check clearance and daily cutoff schedules. For more information, refer to "Depositing Taxes" in IRS Publication 15, Circular E, Employer's Tax Guide.

Need a blank coupon?

There are options for getting blank coupons. Local Taxpayer Assistance Centers (TACs) can provide an authorized individual, depending on the employer’s deposit frequency, either four or eight Forms 8109-B with the Employer Identification Number and business name already entered. Locations are listed in the local phone directory and also at the Contact My Local Office page. If there is not a local TAC in the area, employers can call (800) 829-4933 to request Forms 8109-B be mailed to them.

Another option for obtaining up to 25 blank Forms 8109-B is by writing to the IRS National Distribution Center on company letterhead. Requests should be sent to:

Internal Revenue Service
National Distribution Center
1201 N. Mitsubishi Motorway
Bloomington, IL 61705-6613
Blank Forms 8109-B should only be used in an emergency situation and should not be used on a continuing basis.

Need to make a same-day payment?

If an employer is unable to obtain a paper coupon or unable to timely initiate an EFTPS payment in time to make a required deposit, a same-day wire transfer may be an option. Employers should check with their financial institution to find out if this service is offered and if there are any applicable fees associated with using this method to make a payroll deposit.

Want to avoid the hassles of needing blank coupons?

You should consider EFTPS, it allows you to make different form type payments and provides access to the payment history.

Sign up for EFTPS. Visit EFTPS to join the millions of customers already enrolled in the system. Look for information on the New Batch Provider Software that enables Tax Professionals to make multiple payments (business and individual) for multiple clients. Visit EFTPS.gov, for instructions on how to download the software.

 December 12, 2008

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