Constructive Receipt
You become liable for payroll taxes on the date you pay your employees, regardless of when they did the work associated with that paycheck. This rule is known as constructive receipt. If you only pay employees on Fridays, you only report a tax liability on Fridays, even if employees earn wages every day of the week.
A common point of confusion is when work is performed in one tax period, but employees are paid in a different tax period. The IRS only tracks when employees are paid, not the span of time when the money is earned.
Example:
Tom’s Market pays employees every two weeks. Employees receive a paycheck on January 4th 2008, which covers work performed during the pay period December 15–December 31st 2007. In which month does the tax liability for this payroll fall?
Answer: Tom’s payroll is considered part of his January 2008 tax liability, even though the pay period fell completely in December 2007.
Lookback Period
This is a reference period used by the IRS to determine your federal tax payment due dates. The IRS evaluates your tax liability during this twelve-month period and determines whether you are a monthly or a semi-weekly depositor (see below) for the coming year.
Most new employers are monthly depositors.
Deposit Period
Refers to the span of time during which tax liabilities accumulate for each deposit due date.
Payment Coupon
The form with which a payroll deposit is submitted. For federal tax deposits, the payment coupon is Form 8109. When you pay electronically, you don't need a payment coupon.
Federal Tax Deposit Schedules
The following deposit schedules apply to all federal taxes other than FUTA.
Monthly depositors: You are a federal monthly depositor in 2008 if your company's federal tax liability during the lookback period (7/1/06–6/30/07) was less than $50,000. This is why all new employers are monthly depositors. Monthly depositors pay taxes for a given month by the 15th of the next month. For example, June taxes are due by July 15th. (However, if the 15th falls on a weekend or bank holiday, the taxes are due the next banking day.)
Semi-weekly depositors: If your lookback liability is greater than $50,000, you are a semi-weekly depositor. You pay taxes three banking days after the end of any semi-weekly period in which you accrued a liability. The IRS divides the week into two periods: (1) Wednesday, Thursday, and Friday, and (2) Saturday, Sunday, Monday and Tuesday. Taxes accrued during the Wednesday–Friday period are due on the following Wednesday, and taxes accrued during the Saturday–Tuesday period are due on the following Friday.
In some cases, when a bank holiday (such as July 4th or Christmas) occurs during the week, semi-weekly depositors have an extra day to make their tax payment.
You’ll never have to keep track of tax due dates with PayrollAccountantLive.com. Whenever you have taxes due, PayrollAccountantLive.com sends you an email and puts an item on your To Do list so you know exactly what to do. However, if the government notifies you of a deposit schedule change, you will need to update this information in PayrollAccountantLive.com.
Exceptions to the Deposit Schedule Rules
There are three main exceptions to the monthly and semi-weekly tax deposit requirements, as follows.
Next-Day Deposit Rule: If you accrue $100,000 or more in federal tax liability at any point during a deposit period, you must remit taxes on the next banking day. This could result from a single payroll, or it could result from multiple payrolls within a single deposit period (month or semi-week). For example, if you are a monthly depositor and pay a one-time bonus to employees that results in more than $100,000 in liability on a single day, you must pay the amount due immediately. You also become a semi-weekly depositor until your lookback liability falls below the $50,000 threshold again.
PayrollAccountantLive.com automatically updates your deposit frequency requirements whenever you hit the next-day threshold.
Quarterly exemption: If you owe less than $2,500 in federal taxes for a quarter, you can choose to pay when you file your taxes at the end of the quarter (instead of making deposits during the quarter). If you're not sure how much your business will grow, you should make more frequent deposits: the IRS will assess penalties if you owe more than $2500 at the end of a quarter and have not made tax deposits.
If you choose to make quarterly tax deposits but have $2500 or more due in a quarter, we automatically update your deposit schedule to be monthly.
Annual exemption: If the IRS has notified you in writing that you are a 944 filer, and your total annual federal tax liability is less than $2500, you can make your federal tax deposits annually. The 944 filing status is for very small employers who typically pay $4000 or less in annual wages.
Paying FUTA and SUI
Unlike other federal taxes, FUTA (federal unemployment tax) is paid on the last day of the month following the end of each quarter:
- April 30 (for Q1)
- July 31 (for Q2)
- October 31 (for Q3)
- January 31 (for Q4)
If you accrue less than $500 of FUTA liability in a quarter, you do not need to make a deposit until the following quarter.
Like FUTA, SUI is also paid once per quarter to your state.
PayrollAccountantLive.com keeps track of your total FUTA liability and prompts you to pay FUTA whenever you hit the $500 threshold. PayrollAccountantLive.com Payroll Plus also prompts you when you have a SUI payment due.
State Withholding Schedules
Like the IRS, states have established deposit schedules for paying income tax you’ve withheld from your employees’ paychecks. When you register with the state revenue agency they notify you of your state deposit schedule.
Once you specify the deposit schedule in PayrollAccountantLive.com, you don’t have to worry about the complexity of these schedules. PayrollAccountantLive.com tells you when and how much to deposit. With PayrollAccountantLive.com Plus we will provide payment coupons, which may be required to accompany a deposit.
State Unemployment Insurance
Like FUTA, state unemployment insurance (SUI) taxes are remitted once a quarter, regardless of the employer’s size. In addition, other taxes administered by the state’s unemployment commission, such as Arizona’s Job Training Tax or New York's Re-employment tax, tend to be paid jointly with the SUI tax on a quarterly schedule. In states such as Florida and Nevada, where there are no state taxes withheld from employees’ wages, SUI is the only payroll tax employers pay, so all employers pay taxes quarterly.
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