Federal 941 Payroll Tax Payment Guidelines

Many business owners do not realize how important it is to get payroll tax payments made on time. If a late payment is made, once the IRS catches up to it, the penalties are quite stiff: 10% off the top, plus interest. Try earning that at a bank today! Resist the temptation to pay late,…

Many business owners do not realize how important it is to get payroll tax payments made on time. If a late payment is made, once the IRS catches up to it, the penalties are quite stiff: 10% off the top, plus interest. Try earning that at a bank today! Resist the temptation to pay late, because it's not a money saver, it's a money loser. Plus, penalies are not deductible.

Quick Tip: the IRS uses the term “tax deposit” to mean “tax payment”, and uses the term “monthly depositor” or “semi-weekly depositor” to mean “monthly payer” or “semi-weekly payer”, respectively.

Determine Your Payment Schedule

Before you can determine when the tax payment is due, you must first determine if you are a monthly depositor, or a semi-weekly depositor. Which type you are has nothing to do with when or how often you pay your employees. In order to determine which schedule you are on, examine the payroll records during the “lookback period”. This period always runs from July 1 to June 30. For 2006, the “lookback period” runs from July 1, 2004 – June 30, 2005. If the amount you withheld for 941 taxes is $ 50,000 or less, you are a monthly deposititor. If the amount during that period is more than $ 50,000, you are a semi-weekly depositor.

Monthly Deposititor

If you are a monthly depositor, you will pay the taxes by the 15th of the next month. For example, for 941 taxes withheld during August 2006, the payment was due on Friday, September 15. If the 15th falls on a weekend or Federal holiday, the payment is due the next business day.

Semi-Weekly Deposititor

  • If the payday falls on a Wednesday, Thursday, and / or Friday, the deposit is due on or before the following Wednesday.
  • If the payday falls on a Saturday, Sunday, Monday, and / or Tuesday, the deposit is due on or before the following Friday.

The $ 100,000 Rule

Regardless of which type of depositor you are, if 941 withholdings reach $ 100,000 or more, a payment is due the next business day, and the semi-weekly deposit rules are in effect going forward.

Payment Methods

You may make payments one of three ways:

  • The IRS will send you a yellow booklet containing coupons. Fill one out, and take a check to your bank. Be sure to fill out the top stub of the coupon for your records.
  • Use the Electronic Federal Tax Payment System. Visit eftps.com for more information and to sign up. Allow about two weeks for the enrollment process to complete. Other types of taxes can be paid as well, using this system.
  • Find a payroll provider who offers electronic payment of employment taxes, and enroll in that service.

Avoid Costly Penalties

  • Do not pay late
  • Pay using the correct method
  • Pay the correct amount

These guidelines are for Federal 941 payments only, and are intended for small businesses who have under $ 100,000 in Federal 941 payroll liabilities. See the Instructions for Form 941 , and Circular E for more detail and information.