Overview

Federal payroll tax deposits are how employers remit the payroll taxes they withhold from employees and the employer portions of FICA taxes to the IRS. The system balances two jobs: (1) setting the correct deposit schedule based on your historical tax liability and (2) reconciling the actual deposits to your quarterly or annual payroll tax return so the IRS knows you paid what you withheld. The IRS explains the rules and deadlines on its depositing employment taxes pages (see IRS resources below).

Key rules that determine schedule and reconciliation

  • Lookback period: The IRS uses a 12‑month lookback period (the 12‑month period that ends June 30 of the previous year) to determine whether an employer is a monthly or semiweekly depositor. Employers whose total tax during that lookback is $50,000 or less are generally monthly depositors; those above $50,000 are usually semiweekly depositors (IRS, Publication 15 and Deposit Rules).
  • Next‑day deposit rule: If on any day during a deposit period the accumulated tax liability reaches $100,000 or more, the employer must deposit by the next business day (IRS rules on next‑day deposits).
  • Small‑employer exceptions: Some very small employers may be eligible to file Form 944 (Annual Return) and pay employment taxes annually rather than deposit quarterly; others with a quarterly tax liability below a small threshold can pay with their Form 941 rather than make separate deposits. Confirm eligibility with IRS guidance and your IRS notices.

Deposit deadlines and what they mean in practice

  • Monthly depositors: Deposit employment taxes by the 15th day of the following month for taxes accumulated during a calendar month.
  • Semiweekly depositors: If payday is Wednesday, Thursday, or Friday, the deposit is due by the following Wednesday; if payday is Saturday, Sunday, Monday, or Tuesday, the deposit is due by the following Friday. These rules effectively require faster deposits for higher‑liability employers.
  • Next‑day depositors: Any employer that triggers the $100,000 threshold must deposit by the next business day.

These timing rules are summarized by the IRS; employers should rely on the IRS pages for exact wording and any annual updates (see resources at the end).

Required deposit methods and record evidence

  • Electronic deposits: Most employers are required to deposit employment taxes electronically using the Electronic Federal Tax Payment System (EFTPS). EFTPS allows scheduled payments, real‑time confirmations, and an archive of payments useful for reconciliation (see IRS EFTPS information).
  • Documentation to keep: retention of payroll registers, EFTPS confirmations, bank statements, payroll tax returns (Form 941 or Form 944), and any payroll journal entries. The IRS expects employers to keep employment tax records for at least four years after taxes are due or paid (see IRS Publication 15 guidance).

Step‑by‑step reconciliation process (practical checklist)

  1. Reconcile payroll runs to liability calculations
  • Start with each payroll run: gross wages, taxable wages, federal income tax withheld, Social Security and Medicare withheld, and employer share. Produce a payroll register per pay period.
  1. Aggregate liabilities for the deposit period
  • Add the withheld and employer portions that fall into the deposit period you’re reconciling (monthly or semiweekly period).
  1. Match deposits to liabilities
  • Use EFTPS confirmation numbers and bank withdrawal dates to match each deposit to the liability amount and the deposit period. Ensure amounts line up with the payroll register and with Form 941 lines for the quarter.
  1. Reconcile to Form 941 (or Form 944)
  • Compare the quarter’s total taxes reported on Form 941 with the sum of deposits and any unpaid balance reported. If deposits exceed liabilities, you may have an overpayment; if deposits are short, the shortfall appears as tax due on the return.
  1. Investigate discrepancies immediately
  • If a deposit was posted to the IRS but you think it belongs to a different period, gather EFTPS confirmation, bank record, and payroll documentation. If the quarterly return is wrong because of wage or withholding errors, correct it using Form 941‑X (Adjusted Employer’s QUARTERLY Federal Tax Return or Claim for Refund) or the appropriate amendment process.
  1. Document the reconciliation
  • Save a reconciliation worksheet showing payroll liabilities, deposits, and adjustments. This is the first document auditors will request if there’s a notice or an audit.

Common reconciliation issues and how to fix them

  • Mistimed deposits: A deposit recorded after the due date can trigger failure‑to‑deposit penalties even if the total amount was correct. If that was due to a bank/EFTPS processing error, keep the EFTPS trace/confirmation and start a penalty abatement request if eligible.
  • Misapplied deposits: The IRS can misapply a deposit to the wrong EIN or period. You should contact the IRS, provide proof (EFTPS number, bank trace) and use IRS processes to reallocate the deposit. Where necessary, submit Form 941‑X to correct the return.
  • Underreported wages/withholdings: If payroll calculations were wrong, correct the return with Form 941‑X and adjust payroll tax accounting to prevent reoccurrence.

Penalty exposure and mitigation

Failure to deposit carries penalties that increase with the length of time a deposit is late; interest also accrues on unpaid amounts. The IRS provides a schedule of failure‑to‑deposit penalties and offers relief options in some circumstances (first‑time penalty abatement or reasonable cause). If you receive a notice about failure to deposit, follow the instructions but also collect your records before responding; in many cases an organized reconciliation will shorten resolution time.

In practice: three examples from the field

  • Small business scaling up: I worked with a retailer who crossed the lookback threshold and became a semiweekly depositor. The owner automated deposits with EFTPS, adjusted the cash‑flow calendar and avoided a late deposit penalty the next quarter.
  • Misallocated payment: A mid‑size services firm had a banker enter the wrong EIN when submitting a large deposit. The IRS applied it to the wrong account. We used the EFTPS confirmation and bank trace to request reallocation and filed a Form 941‑X for the quarter while simultaneously requesting expedited correction from the IRS.
  • Form 944 eligibility missed: One client was eligible to file Form 944 but continued making quarterly deposits. After applying for and receiving confirmation of Form 944 eligibility, we adjusted the company process to annual reconciliation and avoided redundant deposits.

Best practices and operational controls

  • Enroll in EFTPS and schedule deposits in advance; use recurring payments for predictable payroll patterns. (See How to Use EFTPS: Enrollment and Payment Tips.)
  • Maintain a payroll tax calendar tied to the lookback period and individual pay dates; flag when you approach thresholds that change your deposit schedule.
  • Keep a separate payroll tax bank account or ledger to reduce commingling risk and make reconciliation simpler.
  • Reconcile at least monthly even if you’re a quarterly reporter; earlier discovery of errors reduces penalties and interest.
  • Preserve all records and EFTPS confirmation numbers for at least four years.

When to get help

If your business faces large liabilities, has multiple EINs, or receives IRS notices about deposits, engage a payroll tax specialist or CPA. You can also find targeted help on procedures to dispute penalties (see How to Challenge an IRS Penalty Notice for Failure to Deposit) and on audit‑ready recordkeeping (see Preparing for an Employment Tax Audit: Records Employers Must Keep).

Authoritative resources (IRS and official pages)

Professional disclaimer

This article explains federal payroll tax deposit scheduling and reconciliation in general terms for U.S. employers and is not individualized tax advice. Rules change and IRS guidance can be updated; consult a CPA or payroll tax professional for situation‑specific advice. For official rules and the latest deposit schedules, rely on IRS publications and pages cited above.

Internal links

Notes on accuracy

The description above follows IRS rules current through 2025. Deposit thresholds and procedural details are subject to change — always confirm with the IRS pages and your tax advisor.