us internal revenue service: p3151a

8/14/2019 US Internal Revenue Service: p3151a

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TheABCs

ofFTDs

ederal

deposits

Resource Guide or

tax

Understanding


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the aBCs o tds

Its a great eeling to have your own small business, isnt it? Youre the boss! Youhave a lot o responsibility to your customers, your suppliers and your employ-ees. You want your business to grow and to be successul. You constantly make

decisions that aect your success. Each decision creates new opportunities andprovides a new learning experience. You welcome the challenge!

Your employees are one o your business most valuable resources. In paying their

salary, you have the responsibility o withholding taxes rom their paychecks. This

withholding includes your employees income tax and their share o FICA (Social

Security and Medicare). You must periodically send this money to the Treasury on

their behal. This is called a ederal tax deposit.

You may be wondering why these ederal tax deposits are so important. As you just

read, the deposits are actually part o your employees wages. Equally important,

the law requires that these deposits be made periodically. You could be charged

large penalties i you dont make them when they are due.

This course was developed to help you better understand the rules or making

these employment tax deposits so you can avoid these penalties. In act, you could

be charged additional penalties i you dont le your employment tax returns on

time and pay the money you owe.

Through this course, we intend to make this process easier to understand. We cant

guarantee youll never have problems again with tax deposits, thats up to you.

We will provide you with some tips that will save you time and moneyresources

that you can then devote to making your business even more successul.

Good luck with your business!


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Introduction Why You are Here.......................................................................1

Money Saving Opportunity

Chapter One Trust Fund Taxes Are Important.................................................2

Practical Exercise 1

Chapter Two Federal Tax Deposit Rules or Form 941 Taxes...........................4

Who must make deposits?

What taxes must be deposited?

When should you make Form 941 tax deposits?

Whats your deposit schedule? (Lookback Period)

Summary o Steps to Determine your Deposit Schedule

Exceptions to Deposit Schedules

Flowchart: When to Deposit Form 941 Taxes


Description o Deposit Schedules

Monthly Schedule

Semiweekly Schedule

Chapter Three Federal Tax Deposit Rules or Form 940 Taxes.........................12

Who makes deposits?

What is deposited?

When are deposits made?

Chapter Four Where and How Federal Tax Deposits Are Made....................14How are deposits made?

How does the Manual Method work?

How does the Electronic Method work?

Customer Service Numbers or EFTPS


Chapter Five Federal Tax Deposit Penalties...................................................18


Chapter Six Summary...................................................................................20

Glossary.....................................................................................21

Answer Key or Practical Exercises

Practical Exercise 1.....................22



Practical Exercise 4 ....................23

taBle o Contents


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You are here to learn about making ederal tax deposits. We are here to helpyou do that. Our goal is to give you the tools you need to:Understand the special nature o employment taxes,

Compute the required deposit amounts or Form 941,

Determine your deposit schedules and deposit due dates or Forms 941 and

940,

Use the Electronic Federal Tax Payment System (EFTPS), and

Understand that penalties or late tax deposits are expensive.

As weve already mentioned, well be discussing the basics o ederal tax depos-

its. Well rst look at what makes employment taxes dierent rom other taxes,

and well discuss the rules or depositing taxes related to Forms 941 and 940. Then,

well outline the preerred methods used to make tax deposits, through your phone

or internet, electronically. Finally, well explain the nancial consequences o not

making correct, timely deposits.

Use this Resource Guide to get amiliar with the requirements or making tax depos-

its. By putting this inormation into practice, you may avoid the resulting penalties

and interest. That means money in your pocket. Ater all, isnt that why youre in

business?

To illustrate how much it will cost you to make your Federal Tax Deposits late, con-

sider this example: Assume your monthly liability or withheld income tax, SocialSecurity and Medicare tax, and your employers matching share totals $3,000 per

month. Review the graph below to see how quickly the penalty or making late

deposits increases. As you can see, using your trust und taxes to nance your busi-

ness can be very expensive.

Why you are here

$500

$400

$300

$200

$100

$0

$150

$300

$450

1 t 5 6 t 15 16 +

Days past due date

PenaltyAmo

unt

10 daysater bi

FTD Palty $3,000 Dpst

$60

ntroDucTion


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When you pay your employees, you do not pay them all the money theyearned. The income tax and the employees share o FICA (Social Securi-ty and Medicare) you withhold rom your employees paychecks are the part o

their wages you pay to the Treasury instead o to your employees. The portion otheir wages you hold or transmitting to the Treasury is called Trust Fund taxes.

Through this withholding, your employees pay their contributions toward their

retirement benets (Social Security and Medicare) and the income taxes reported

on their own tax returns. Your employees trust und taxes, along with the employ-

ers matching share o FICA, are paid to the Treasury through the Federal Tax

Deposit (FTD) System.

As you can see, the part o your employees wages that you do not give them is

actually their money. You should deposit these amounts on time or their benet.

Postponing the tax deposit isnt the same as using your own money to make a late

payment on your phone bill or to a supplier.

Congress established large penalties or employers that delay in turning over

employment taxes to the Treasury. The longer you delay paying that money, the

more it could cost you.

trust und taxes areimportantchapterone

W m

Trust Fund Tax: Money

withheld rom anemployees wages

(Income, Social Securi-

ty and Medicare taxes)

by an employer and

held in trust until paid

to the Treasury.

Employer:You earned gross

wages o $300 thisweek.

Employee:Here is the $30 or my incometax, and the $23 or my Social Se-curity retirement and Medicareor you to send to the Treasury.Be sure to send your employer

share o Social Security andMedicare, too!


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3

pcc ec o

1 Which o the ollowing are trust und taxes?

A. Withheld income taxes

B. Employers portion o Social Security and Medicare

C. Employees portion o Social Security and Medicare

D. A and B

E. A and C

F. B and C

2 The trust und portion o tax deposits belong to:

A. Stockholders

B. Business Owner

C. Customers

D. Employees

he ABCs o Federal Tax Deposits


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Now that you understand ederal tax deposits are important, you are ready tolearn the rules or making the deposits.W ?Deposits are required i you le Form 941 with $2,500 or more in taxes per quar-

ter.

W b ?

Income tax withheld rom your employees

FICA (Social Security and Medicare) tax withheld rom your employees

FICA (Social Security and Medicare) the employers share

i dc

Making deposits and ling employer returns with payments are not the same.

Taxes are:

Reportedby ling, and

Paidby depositing

Lets review this payroll record to compute the amount o taxes to be deposited or

July.

B + C + e =t d d

600 + 306 + 306 = $1,212

In this example, the employer would deposit $1,212, the total o the income tax

withheld, and both the employers and employees shares o FICA (Social Securi-

ty and Medicare).

ederal tax deposit rulesor orm 941 taxeschapterTwo

W m

Form 941 (Employers

Quarterly Federal TaxReturn): Return reporting

ederal income tax

withheld, and employer

and employee shares

o Social Security and

Medicare. The return is due

the last day o the month

ollowing the end o the

quarter.

FICA: Federal Insurance

Contributions Act, which

provides or Social Security

and Medicare benets.

Gross IncomeTaxemployee's neT employer'semployee WaGes WIThheld FIca WaGes FIca

xyZcompanypayrollrecordForJUly

colUmnacolUmnBcolUmnccolUmndcolUmne

Joe $ 1,000.00 $ 150.00 $ 76.50 $ 773.50 $ 76.50 Jane 1,200.00 180.00 91.80 928.20 91.80

John 1,800.00 270.00 137.70 1,392.30 137.70

ToTals $4,000.00 $600.00$306.00$3,094.00$306.00


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W 941 ?

The easiest way is to make a deposit the same day you make payroll, or anytime

.

I your total taxes or the quarter are less than $2,500, they can be paid with

the return or deposited by the return due date.

I your total taxes on Form 941 are $2,500 or more, youll need to determine

which deposit schedule to ollow.

W c?

To determine your deposit schedule, you need to review the amounts o tax report-

ed on your earlier Forms 941. This will establish your lookback period, which is the

12-month period ending June 30 o the previous year. For 2007 taxes, you need to

look back rom July 1, 2005 to June 30, 2006. In other words, you look back to the

last two quarters o 2005 and the rst two quarters o 2006.

Lba pd f 007 Dpsts

July 1, 2005 through June 30, 2006 00 006

third & Fourth Quarters First & second Quarters7/1/05 through 9/30/05 1/1/06 through 3/31/06

10/1/05 through 12/31/05 4/1/06 through 6/30/06

I you are a new employer and had no employees during the lookback

period, you are automatically a Monthly Schedule Depositor. Two exceptions tothis rule are covered later in this chapter.

Ater you determine your lookback period, you need to total the taxes reported on

Forms 941 during this period. Once you determine your total tax during the look-

back period, it is easy to determine your deposit schedule:

I total taxes are $50,000 or less, you make m sc d.

I total taxes are greater than $50,000 you make sw sc d-

.

W m

Lookback Period: A 12-

month period that ends

June 30 o the prior

year.

The total tax liability

reported during the

lookback period is used

to determine which

deposit schedule a

business uses during the

current year:

$50,000 or less ollow

the Monthly DepositSchedule

More than $50,000

ollow the Semiweekly

Deposit Schedule



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6

Lets go over an example to help

determine your deposit schedule or

2007. Since the Lookback period is

July 1, 2005, to June 30, 2006, we

need to add the taxes rom Forms

941 or the third and ourth quar-ters o 2005 and the rst and second

quarters o 2006.

In this example, the total taxes (line E) during

the lookback period were $35,000. Since this is

less than $50,000, the business will be a monthly

schedule depositor or 2007.

Chapter 2 Federal Tax Deposit Rules or Form 941 Taxes

Ta fm L 0,

Qat Fm 9

a third 2005 $ 10,000

B Fourth 2005 + 9,000

c First 2006 + 5,000

d second 2006 + 11,000

e total taxinlookBackperiod = $ 35,000

A

B

C

D

$10,000

$9,000

$5,000

$11,000


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7

W

Deposit Period The

period o time during

which an employer accu-

mulates tax liability or

paying to the Treasury on

the next due date. Depos-

it periods vary depending

on which deposit sched-

ule the employer must

ollow.

s s d y d sc

Identiy lookback period.

Add the total taxes (line 10 o Form 941) you reported during the lookbackperiod.

Determine your deposit schedule:

Employers are required to determine their own deposit schedule. Depos-

it schedules remain the same or the entire calendar year unless you meet one o

the exceptions explained below.

ec d sc

$100,000 Next- Day Deposit Rule:

I, during any deposit period, you accumulate a tax liability o $100,000 or

more, you must make a deposit by the next banking day.

Once you meet the $100,000 next-day rule, you ollow the semiweekly sched-ule or all deposits less than $100,000. You are a semiweekly schedule deposi-

tor or the rest o the year, and during all o the next calendar year.

Banking Days

I your deposit is due on a non-banking day, make it by the close o the next

banking day.

Federal and state bank holidays, Saturdays and Sundays are non-banking

days.

h : u --w w c g -

c.

1.

2.

3.

1.

2.


if t ttal tas y ptd t lba pd ... T y a a...

$50,000 r ess

Mre than $50,000

Mtly Schedue Depsitr

Smly SchedueDepsitr


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Dpst tas by t d f

t mt aft t d ft qat, mal tast Fm 9.

Dpst tas by t tbag day.

Y a a Smly Sd-l Dpst.Dpst tas fmpaydays pad :

wdsday, Tsdayad Fday by tfllg wdsday.

Satday, Sday,Mday ad Tsdayby t fllg Fday.

yes

yes

yes


W d 941 e t

no

no

no

no

YeS

YeS

yesYeS

yesyesYeS

wll ttal tas f tqat b

lss ta $,00?

if, s, as no.

is y amlatd labltyf t dpst pd

$00,000 m?

Dd y fall d t$00,000 l at ay tm

dg ts ya last ya?

A t ttal tas f tLba Pd*

m ta $0,000?

Y a aMtly Sdl Dpst.Dpst tas f t mt

by t t f t fllg mt.


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9

pcc ec tw

1 To determine when deposits are due or 2007, com-pute the tax liability in the Lookback period usingthe inormation rom the ollowing list o Form 941sand the chart below.

941 Q t First 2005 $9,200 second 2005 $8,800 third 2005 $8,000 Fourth 2005 $8,500

First 2006 $9,000 second 2006 $9,090 third 2006 $9,100 Fourth 2006 $9,300

Q t 941

A +

B +C +D +

E Total =2 Based on your answer to Question 1 , which deposit

schedule would you ollow in making your FTDs?

A. Quarterly

B. Semiweekly

C. Monthly

3 Which deposit schedule would you ollow in mak-ing your FTDs i this is the rst quarter that the busi-ness has employees and the tax liability was $5,000or the quarter?

A. Quarterly

B. Semiweekly

C. Monthly



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0

dc d sc

Now that you know how to determine i you are a Monthly Schedule Depositor or

a Semiweekly Schedule Depositor, you are ready to learn the deposit requirements

or each schedule.

Monthly Schedule Depositors Deposit each months taxes by the 15th o the

next month.

Semiweekly Schedule Depositors Most employers will make deposits on

Wednesdays or Fridays, depending on when you pay payroll.

Semiweek-

ly depositors only have

to make deposits twice a

week i they pay payroll

more than once a week.

For example, i you paid

hourly employees on Fri-

days, and salaried

employees on the 5th

and 20th o a month,

you may end up with

two dierent paydays in

a week, and could have

to make one deposit onWednesday and anoth-

er on Friday.

1.

2.

Deposits or payroll paid anyday in July are due on (or

beore) August 15.

AuGuST S M T w T F S 1 2 3 4

5 6 7 8 9 10 11

12 13 14 15 16 17 18

19 20 21 22 23 24 2526 27 28 29 30 31

JuLY S M T w T F S 1 2 3 4 5 6 7

8 9 10 11 12 13 14

15 16 17 18 19 20 21

22 23 24 25 26 27 2829 30 31

[[


AnY week

Sun Mon Tue weD Thu Fri SATPayday

Payday Payday Payday Dpst

For wages paid Saturday, Sunday, Monday or

Tuesday, deposit taxes by ollowing Friday.

AnY weekSun Mon Tue weD Thu Fri SAT

Payday Payday Payday

Dpst

For wages paid Wednesday, Thursday, or Friday,

deposit taxes by ollowing Wednesday.


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rb!

Deposits can be made anytime rom payday through the deposit due date.

Deposit rules are based on when wages are , not . (For example, amonthly schedule depositor with wages in June but in July, must

deposit by August 15.)

The terms m sc d and sw sc d-

:

do reer to which set o rules you should ollow to make deposits, but

dont reer to how oten you pay wages, or make deposits.

A m sc d deposits taxes rom all paydays in a month by

the 15th o the next month, even i they pay wages every week.

A sw sc d deposits taxes by the Wednesday or Friday

ollowing payday, even i they pay wages only once a month.

d pperiod o time that undeposited taxes are accumulated or

payment to the Treasury:

Calendar month or m sc d;

Wednesday through Friday, or Saturday through Tuesday or sw

sc d.

1.

2.

3.

4.

5.

6.



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In addition to Form 941 taxes, employers are also responsible or FederalUnemployment Tax Act (FUTA) taxes which are reported on Form 940. Only theemployer pays FUTAit is not deducted rom employees wages and is not a trust

und tax.

W ?

An employer with more than $500 in undeposited FUTA tax at the end o any quar-

ter. This includes any FUTA tax that was not deposited in a prior quarter during the

calendar year.

hw ?

The tax applies only to the rst $7,000 paid to each employee each year (see Pub-

lication 15: Circular E Employers Tax Guide or additional inormation). General-

ly, you will multiply the wages by .008 (.8%) to determine FUTA tax liability. This

may dier i any wages subject to ederal unemployment tax are exempt rom

state unemployment tax. Circular E and the instructions or Form 940 provide more

inormation.

ederal tax deposit rulesor orm 940 taxes3chapterThree

W

Form 940, Employers

Annual Federal

Unemployment Tax

ReturnReturn reporting

ederal unemployment

tax, due January 31st o

the ollowing year.


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3

l w c

uta f q .

t $144 $500 , c b

v q

W ?

Your deposit schedule depends on the amount o your tax liability at the end o a

quarter.

You should make quarterly deposits when undeposited taxes reach more than

$500. The deposit is due the last day o the month ollowing the end o the

quarter.

In the example above, the $144 undeposited tax is $500 or less, and can be

held over to the next quarter. I annual tax is $500 or less, it can be paid with

the 940 return or deposited by the return due date.


Payll f Qat edg Ma 3A B c D e

employee gross Wages suBJect WagessuBJectto Federaltax Futa taxWages to state tax (upto $7,000 (column d

per employeeper year) x .008)

Je $6,000 $6,000 $6,000 $48

Jane $8,000 $8,000 $7,000 $56

Jhn $5,000 $5,000 $5,000 $40

ToTAL $19,000 $19,000 $18,000 $144


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hw ?

Deposits can be made through the Electronic Federal Tax Payment System (EFTPS).

The taxpayer is guided through the payment steps. You may make payments

through the Internet at www.etps.gov or call 1-800-555-4477.

hw ?

In an emergency or as a back-up you may:

Complete a Federal Tax Deposit Coupon, Form 8109.

Mail or deliver the Form 8109, deposit coupon with your payment so that it will

arrive at the bank no later than the deposit due date.

I you use a coupon, you may make your ederal tax deposits at any authorized

nancial institution. d n send your ederal tax deposit coupons directly to theIRS as it will delay getting the money into the Treasury.

hw i g 8109 c b?

New employers are automatically enrolled in EFTPS ater applying or an Employ-

er Identication Number (EIN). You may order preprinted coupons with your name,

address and EIN by calling 1-800-829-4933. Allow 56 weeks or coupon delivery.

hw i cc ?

Use your phone or internet to access the Electronic Federal Tax Payment System

(EFTPS). You can arrange or your tax deposits to be transerred directly rom your

existing bank account to the Treasury. This system is to using the paper-based FTDcoupon method or making deposits. Any ederal tax can be deposited electroni-

cally through EFTPS.

EFTPS is a service provided ree by the Department o Treasury, and uses the high-

est security available. Any ederal tax can be deposited electronically through

EFTPS.

d i b c q etps?

No, you may use any telephone, your personal computer with internet access, to

input your tax deposit inormation. You can pay online at our website: www.etps.

gov.

1.

2.

Where and hoW to makeederal tax depositschapterFour

W

Employer Identication

Number (EIN): A permanent

identication number

assigned to each business

to use when making tax

deposits and or ling all

required tax returns.


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hw etps c w?

You make contact with EFTPS by telephone, using a toll-ree phone number, or by

visiting the EFTPS website, www.etps.gov. This automated system is available 24

hours a day, seven days a week. You should initiate your payment no later than

2:00 p.m. Eastern Time the business day beore your deposit is due. Ater establish-

ing contact:

Enter your EIN and a personal identication number (PIN) and internet pass-

word.

Enter the amount, orm number, tax period and the date you want the money

withdrawn rom your account.

Your unds will be transerred rom your account directly to the U.S. Treasury

account on the date you speciy, or the amount you speciy. No one has unau-

thorized access to your account inormation.

When using EFTPS, make sure your bank account contains sucient

unds to cover your tax transer.

hw i g etps?

Enroll online at www.etps.gov, or call 1-800-555-4477 to request an enrollment

orm. Ater you complete the enrollment orm, EFTPS will send you a Conrmation

Packet, including a step-by-step Payment Instruction Booklet and the telephone

numbers or accessing EFTPS.

d etps v g v -z cc?

When you use EFTPS, you receive a personal identication number (PIN), that must

be used in combination with your EIN to gain access to EFTPS. You have complete

and exclusive control over your PIN. The IRS does not have access to your PIN. And

i you make your payments online, you will also use an Internet Password, as an

additional saeguard when using the Internet.

hw i v i v cc ?

With EFTPS, you will receive an immediate acknowledgment number when you

complete the transaction. The acknowledgment number will veriy you have

timely initiated your payment. In addition, the unds transer will appear on yourbank statement.



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6

W i b cg g etps?

The government does not charge a ee or originating direct transactions through

EFTPS. Most banks do not charge a ee or processing EFTPS payments. However, i

the bank does charge a ee, its usually no more than the cost o processing a paper

check. You should check with your nancial institution to learn i it will charge a

ee.

C i c vc?

Yes. You can go online or call to schedule a business tax payment up to 120 days

in advance o the due date. On the date you indicate, the unds will be transerred

to make your payment per your instructions.

C i etps ?

Yes. EFTPS is available to all taxpayers. You would enroll separately as an individ-

ual and you could make your personal tax payments through EFTPS.

d i v cc ?

Yes. With EFTPS, you have access to the last 16 months o your payment history

online or by phone. The history eature shows when payments were made, the

amounts, the taxes paid, and the acknowledgement numbers or each payment.

W vg g etps?

You dont have to write a check or mail a letter.

You dont have to make a last minute trip to the bank just to make a deposit.

You can make an arrangement in advance to make a transer on the day

beore it is due.

It allows you to use your time more eciently.

C svc b etps

This service is available 24 hours a day, 7 days a week:

English 1-800-555-4477

Spanish 1-800-244-4829

TDD 1-800-733-4829

Chapter 4 Where and How to Make Federal Tax Deposits


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7

pcc ec 3

Compute the amount o tax to be deposited or themonth o April using the inormation below.

income tax employeesmonth Wages Withheld WithheldFica

april $10,000 $1,500 $765.00may $9,000 $1,400 $688.50June $11,000 $1,600 $841.50ToTAl $30,000 $4,500 $2,295.00

This inormation would be used to make the deposit by EFTPS. You

would simply go online or call the toll-ree number, and provide

your Employer Identifcation Number and PIN, and the inormation

required on the Form 8109.


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As you previously learned, it is important to make timely ederal tax depos-its because most o the money belongs to your employees. I you make thesedeposits late, you will receive a penalty. This penalty is called a ailure to depos-

it penalty and is computed by multiplying the amount o tax you have under-paid by a penalty percentage rate based on how many days late you make the

deposit.

Fal t Dpst Palty Ptag rats percenTaGeraTe penalTyon

nUmBeroFdayslaTe UnderpaymenT $3,000

15 2% $60

615 5% $150

16 + 10% $300

Mre than 10 days ater irst IRS bi 15% $450

In addition to the above deposit penalties, you will also be subject to penalties i

you late le your Forms 940 or 941, or dont pay the amount due on the return:

ot Palts raTe maxImUm

Faiure T Fie Penaty 4.5% per mnth unpaid tax 22.5%

1/2 % per mnth

Faiure T Pay Penaty unpaid tax, then 1% ater 25%

Ntice Intent t levy

r: In addition to penalties, you also must pay interest. Interest rates are

set quarterly. For example, the interest rate has recently varied between 810%.

You will continue to pay interest until you pay all the money you owe the govern-

ment.

ederal tax depositpenaltieschapterFive

a Gc

Failure to Deposit Penalty

Rates or Unpaid Tax:

1-5 days late: 2%

6-15 days late: 5%

16 or more days late: 10%

More than 10 days ater

the rst IRS bill: 15%


22/27

9

As a business person, you regularly have to make decisions regarding the nanc-

ing o your business, especially during periods when you ace a cash fow problem.

You may rely on your banker or this nancing. However, you may also consider

using unpaid tax deposits. To do this, you wouldnt deposit your employees with-holding. This means you would get penalties. Lets assume you need $10,000 or a

year and compare three dierent ways o obtaining the needed money.

option a: Bank fnancing at 16%$ 10,000 + $ 1,600 Interest = $ 11,600

option B: Use a credit card at 18%$ 10,000 + $ 1,800 Interest = $ 11,800

option c: Use the Trust Fund Taxes$ 10,000

+ $ 1,500 Depsit Penaty 15%+ $ 1,200 Faiure t Pay Penaty 1% per mnth+ $ 900 Interest= $ 13,600

Not only is it wrong to use trust und monies to nance your operations, it

can also be the most expensive alternative.

pcc ec 4

Please indicate whether each statement is true or alse.

T F

1 Employer has $2,500 in tax liability or the quarter. As long as

deposits are made by the return due date, there is no deposit

penalty.

2 The penalty or late deposits varies depending on how late the

deposit is madethe amount increases the later the deposit is

made.

3 The penalty or late deposits is 10% o the amount o the undepos-

ited tax, no matter when it is paid.

4 There are additional penalties on taxes that are not paid or returns

not led by the due date o the return.



23/27

0

You have learned the ABCs o FTDs the basic rules or making ederal taxdeposits o employment taxes. In a nutshell:

Who q ?Employers with an employment tax liability o $2,500 or more in any calendar

quarter.

What q b ?

Employees ederal income tax and FICA withholding along with the employers

share o FICA.

When b ?

It depends on the employers deposit schedule. Generally, new employers and

small employers will have a monthly schedule. Under the monthly rule, each

month's taxes are required to be deposited on or beore the 15th day o the ollow-

ing month.

Under the semi-weekly rule, the deposits are due based on a schedule which

divides the calendar week into two (semi-weekly) sections.

The deposit or a pay date o Wednesday, Thursday or Friday must be made

on or beore the ollowing Wednesday.

The deposit or a pay date o Saturday, Sunday, Monday or Tuesday must be

made on or beore the ollowing Friday.

hoW ?

Electronically by telephone or internet through EFTPS. Remember that EFTPS is a

ree, convenient, time ecient way to deposit taxes.

I you choose to use a paper coupon, you may contact the IRS to order.

Form 941 taxes are part o your employees wages or salaries, which is being

entrusted to you to pay to the Treasury. It is your employees income tax, Social

Security tax and Medicare, along with your (the employers) matching portion o

Social Security and Medicare tax. That is why the employees portions are called

Trust Fund Taxes. Form 940 taxes are paid by you, the employer, to provide or

unemployment compensation to workers who have lost their jobs.

You also learned there are costly penalties or not making the required ederal tax

deposits. Good business practices dictate that paying penalties is not the best use

o your valuable nancial resources.

Thank you or taking this opportunity to become better acquainted with the eder-

al tax deposit system. Best wishes or success in your business.

summary6chapterSix

n addition to your tax advisor,

you may obtain IRS assistance

hrough the ollowing:

EFTPS website: www.etps.gov

EFTPS Customer Service: 800-

555-4477

IRS web site: www.irs.gov

Toll ree telephone: 800-829-

1040

Face to ace: local IRS oce

Publications: Publication 15,

Circular E, Employers Tax

Guide.


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BANKING DAY The portion o a nancial institutions

business day where the banking transaction date is

the same as the calendar date. A banking day does

not include Saturdays, Sundays, and state and Fed-eral holidays. In addition, a banking day general-

ly ends at 2:00 PM even though the institution may

remain open until a later time.

CIRCULAR E, Employers Tax Guide (Publication 15)

IRS publication which provides inormation to employ-

ers regarding their responsibilities or ederal taxes. It

also contains tables or income tax withholding.

DEPOSIT PERIOD The period o time during which an

employer accumulates tax liability or paying to the

Treasury on the next due date. Deposit periods vary

depending on which deposit schedule the employ-

er ollows (see monthly deposit schedules and semi-

weekly deposit schedules).

EIN (Employer Identication Number) A permanent,

nine-digit number IRS issues to each business to iden-

tiy the business tax account. A business should have

only one EIN and should use it when making tax

deposits and ling all required ederal tax returns.

EFTPS (Electronic Federal Tax Payment System) Aree system provided by Treasury that allows or the

electronic transer o unds rom taxpayer accounts

directly to the Treasurys general account. This is a

convenient, time-saving method or employers to

make their required Federal Tax Deposits using a tele-

phone or internet.

FEDERAL TAX DEPOSIT SYSTEM Method established

or transerring taxes rom the business to the Trea-

sury. Deposits can be made directly rom your bank

account to the Treasury by phone or internet using

EFTPS.

FICA (Federal Insurance Contributions Act) A law

that provides or Social Security and Medicare ben-

ets.

FORM 940, Employers Annual Federal Unemploy-

ment Tax Return Return reporting ederal unem-

ployment tax, due January 31st ater the tax year

ends.

Glossary

FORM 941, Employers Quarterly Federal Tax Return

Return reporting ederal income tax withheld, and

employer and employee shares o Social Security and

Medicare. It is due the last day o the month ollowingthe end o the quarter.

FORM 8109, Federal Tax Deposit Coupon Used or

making deposits o ederal taxes to an authorized

depository as a backup to EFTPS.

FTD Federal Tax Deposit

FUTA Federal Unemployment Tax Act

LOOKBACK PERIOD A 12-month period, covering

our quarters, ending June 30 o the prior year. The

total tax liability reported on Form 941 during that

period is reviewed annually to determine which

Deposit Schedule an employer is to ollow or the cur-

rent calendar year.

MONTHLY SCHEDULE DEPOSITS The Federal Tax

Deposit Schedule ollowed by those employers whose

total taxes were $50,000 or less during their most

recent Lookback Period. Tax deposits or payrolls

paid during one month are due by the 15th day o

the next month.

SEMIWEEKLY SCHEDULE DEPOSITS The Federal Tax

Deposit Schedule ollowed by those employers whose

total payroll taxes were more than $50,000 during

their most recent Lookback Period. Tax deposit or

payroll paid during the deposit period rom Wednes-

day through Friday are due by the ollowing Wednes-

day. Tax deposits or payroll paid during the depos-

it period rom Saturday through Tuesday are due by

the ollowing Friday.

TRUST FUND TAX The money an employer is

required to withhold rom an employees wages (Fed-

eral Income Tax Withheld, Social Security and Medi-

care taxes) and periodically pay to the Treasury. Fed-

eral income tax withheld is then credited against tax

due on employees individual tax returns. Social Secu-

rity and Medicare withheld are the employees contri-

bution toward retirement and hospital benets.


25/27

pcc ec 1, g 3

The correct answer is E, A and C

A. Withheld income taxes are taken out o employees paychecks and heldin trust to be turned over to the Treasury. This is only part o the correct

answer.

B. Employers portion o Social Security and Medicare is not taken out o

employees paychecks. It is an additional cost o having employees, but

is not a trust und tax.

C. Employees portion o Social Security and Medicare has been withheld rom

the employees paycheck, and is held in trust to be turned over to the Trea-

sury. This is only part o the correct answer.

D. A and B are incorrect because the employers portion o Social Security andMedicare is not a trust und tax.

E. A and C are correct because Withheld income taxes and the Employees

portion o Social Security and Medicare are taken out o employees pay-

check and held in trust until they are turned over to the Treasury.

F. B and C are not correct because the employers portion o Social Security

and Medicare is not a trust und tax.

The correct answer is D, since the trust und deposits are actually money with-

held rom the employees paycheck.

pcc ec 2, g 9

Qat Ttal Tas fm Fm 9a 3rd Quarter 2005 + $8,000

B 4th Quarter 2005 + $8,500

C 1st Quarter 2006 + $9,000

D 2nd Quarter 2006 + $9,090

E Tta Tax in lkback Perid

A + B + C + D = $34,590

The Lookback Period or 2007 is the 12-month period rom July 1, 2005 through June

30, 2006. Add up the taxes reported on Forms 941 or the Third and Fourth Quarterso 2005 and the First and Second Quarters o 2006.

The correct answer is C, the Monthly Schedule. Since the total tax in the Look-

back Period was less than $50,000, the Monthly Schedule would be ollowed.

The Quarterly Schedule would only be used i the total tax or the quarter was

under $2,500. The Semi-weekly Schedule would be used i the total tax during

the Lookback Period was more than $50,000.

1.

2.

1.

2.

ansWer key or praCtiCalexerCises


26/27

3

The correct answer is C, the Monthly Schedule. Their total tax or the quarter

is more than $2,500, so the tax deposits must be made. I an employer did not

have any employees during the Lookback Period, their total tax or that time

was -0-. A New Employer ollows the Monthly Schedule or deposits unless theymeet the $100,000 rule. (See page 6.)

pcc ec 3, g 17

The correct answer is $3,030. The tax deposit due would be the total o the

income tax withheld o $1,500, the employees withheld FICA o $765.00, and

the employers matching share o FICA o $765.

pcc ec 4, g 19

True. I there is $2,500 or more in total tax or the quarter, the employer must

ollow the Monthly or Semiweekly Schedule or deposits.

True. There is a our step penalty or late deposits, rom 2% to 15%, dependingon how late the deposit is made.

False. The penalty is 10% i the deposit is 16 or more days late, but has been

deposited beore 10 days ater the employer receives a bill. I the deposit is

made earlier, the penalty is smaller. I the deposit is made ater 10 days ater

the employer receives a bill or the unpaid tax, the penalty increases to 15%.

True. There are late ling and late payment penalties in addition to late depos-

it penalties that can be charged i returns are not timely.

3.

1.

1.

2.

3.

4.



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us internal revenue service: p3151a

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