Payroll Deposits

Today TaxMama® hears from Donna in the TaxQuips Forum with this running argument. “Our debate concerns a client whose payroll taxes for the current and previous quarters well exceeded $2,500. The client is a monthly depositor and did not make a timely deposit for the last month in the quarter. The deposit amount due for that month is under $2,500. My staff insists the client can make the deposit with form 941, because it is under $2,500. My position is that the client should electronically file this deposit, because they do not qualify for the under $2,500 rule. Also I don’t believe this client falls into the accuracy of deposit rules. Can you help settle this?”  

Ask TaxMama 

 Hi Donna,

Saroj K agrees with you – and so do I. the client should make the deposit electronically, as part of the regular payroll procedure. The IRS has so much experience with employers, who once they start being late – continue to get further behind. Personally, I encourage all my clients to deposit the payroll taxes within three days after each payroll, regardless of the size of their deposits.  

But, for employers who miss their regular deposit date, there is this rule –  Makeup Date for Deposit Shortfall:

  1. Monthly schedule depositor. Deposit the shortfall or pay it with your return by the due date of your return for the return period in which the shortfall occurred. 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 (whichever comes first) 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).

Do you want to know the best way to tell if you’re right? Watch and see if the client gets a payroll deposit penalty. If there is no penalty, your staff is right. If there is – you are!  

Incidentally, if the IRS does assess a penalty, contact them and ask to have it waived. Typically, if you ask nicely, IRS will waive the first-time penalty. Then, even if you’re right, you’ll be a hero.

And remember, you can find answers to all kinds of questions about payroll tax deposits and other tax issues, free. Where? Where else? At www.TaxMama.com.

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