Overview

Small employers must collect payroll taxes from wages and deposit those amounts to the IRS on a schedule set by federal rules. Proper classification, timely deposits, and electronic payment (EFTPS) keep a business out of penalties and protect owners from personal exposure to trust‑fund liabilities (TFRP) (IRS).

How deposit frequency is determined

  • Lookback period: The IRS uses a 12‑month lookback period (the 12 months ending the prior June 30) to determine whether an employer is a monthly or semiweekly depositor. See IRS guidance for the exact lookback window (IRS Publication 15).
  • Monthly depositor: If total liability for withheld income tax plus both halves of FICA in the lookback period is $50,000 or less, the employer is generally a monthly depositor.
  • Semiweekly depositor: If that total exceeded $50,000 during the lookback period, the employer is generally a semiweekly depositor.
  • 100k next‑day rule: If an employer’s accumulated tax liability reaches $100,000 on any day, that deposit must be made by the next business day regardless of depositor type.
  • New employers: If you have no lookback history, you generally start as a monthly depositor until the IRS assigns you a schedule.

(Sources: IRS Employer’s Tax Guide / Publication 15; IRS small business pages.)

How to make deposits

  • Electronic deposits via EFTPS are required for nearly all federal tax deposits. Register at EFTPS and schedule payments in advance to avoid missed deadlines (EFTPS.gov).
  • Deposit due dates depend on your depositor status: monthly deposits are due by the 15th of the following month; semiweekly rules depend on payroll day (see IRS tables).
  • Use payroll software or a reputable payroll provider that posts deposit reminders and files the payments through EFTPS.

Penalties and enforcement to watch for

  • Failure‑to‑deposit penalties increase with time and can be significant; see IRS Publication 15 for current penalty tiers. Interest accrues on late deposits.
  • Trust Fund Recovery Penalty (TFRP): If responsible persons willfully fail to collect, account for, or pay payroll taxes, the IRS may assess the TFRP, which can make individuals personally liable for unpaid trust fund taxes (26 U.S.C. § 6672; IRS).

Common small‑business pitfalls

  • Relying on calendar assumptions: A change in employee hours or a seasonal payroll surge can push you into a semiweekly schedule unexpectedly.
  • Late EFTPS registration: Waiting to register for EFTPS can cause missed deposits the first time taxes are due.
  • Mixing payroll and operating funds: Treat withheld taxes as trust funds—do not use them for other business expenses.

Practical checklist for staying compliant

  1. Determine your depositor status using last year’s lookback information (or consult your payroll provider).
  2. Register for and use EFTPS; schedule recurring deposits where possible.
  3. Reconcile payroll tax liability weekly in your accounting system.
  4. Keep a short list of who is authorized to initiate deposits and require dual review for transfers.
  5. If you miss a deposit, file and pay immediately and contact a tax professional—there are penalty abatement options in some first‑time situations (IRS).

Short example

A seasonal retail shop that hires additional staff for the holidays found their accumulated withheld taxes exceeded $50,000 during the lookback period and were reclassified as a semiweekly depositor. They switched payroll software and set up daily cash monitoring to ensure timely EFTPS deposits, which eliminated late‑payment penalties.

Helpful resources

Further reading on FinHelp.io:

Professional disclaimer

This article is educational and does not constitute tax advice. For guidance tailored to your business, consult a qualified CPA, enrolled agent, or the IRS.