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Workforce Management

Federal Tax Deposit 101: Everything Employers Must Know

What is a Federal Tax Deposit?

Most would agree that taxes is not an exciting topic. But a full understanding of the rules around taxes is absolutely essential for employers. It’s a major responsibility to manage employees and follow the requirements of withholding taxes from employee wages.

The IRS has specific and strict guidelines around withheld taxes. Any withheld taxes must be deposited to the IRS in the appropriate manner. This process is called the federal tax deposit.

In this guide, we’ll outline the important aspects of payroll processing and the federal tax deposit.

Before we dig into the federal tax deposit, these are the important areas within employee taxes and payroll.

  • Paycheck calculation and preparation
  • Withholding taxes and other required fees
  • Depositing withheld tax money from paychecks appropriately
  • Reporting on tax information, withholding, and deposit history

What is a Federal Tax Deposit Obligation?

There is a minimum amount of federal payroll taxes employees must meet. The precise number is set by the Federal Insurance Contributions Act or FICA. The federal tax deposit obligation is comprised of federal income, unemployment, Medicare taxes, and Social Security. The obligation applies to all workers whether seasonal, part-time, or full time.

Employers also have a federal tax deposit obligation. This is the total payroll tax liability which is reported on IRS form 941. This form is due on a quarterly basis.

The Federal Tax Deposit Coupon Defined

You may have never heard of the IRS Form 8109, also called the federal tax deposit coupon, but it is important for companies that meet the small business exception. For these companies, they must submit the federal tax deposit coupon along with the federal payroll taxes.

Finding Your Total Payroll Tax Liability

To find your payroll tax liability, the IRS has the 941 Form also called the Quarterly Wage and Tax Return. The form helps companies accurately determine the amount they must pay in a federal tax deposit.

How to Submit a Federal Tax Deposit

This is how companies electronically submit the federal tax deposit.

  1. Go to the IRS website to submit a federal tax deposit. The IRS requires deposits to be made electronically using an online system.
  2. Companies can also set up ACH credit payments which makes the process automated.
  3. Often a payroll service can be leveraged to file federal tax deposits on behalf of an employer.
  4. If necessary, a bank can even do same-day wire payments of the federal tax deposits.

Federal Tax Deposit Deadlines and Submission Due Dates

As for the deadlines for federal tax deposits, the IRS sets them. The deadlines and due dates are based on company size and employment tax obligations. The IRS uses the gross Social Security and Medicare liability of a company to define the tax deposit schedule.

The IRS notifies companies of their due dates every year by the end of the year so companies have time to prepare. The best strategy is to work with an accountant to stay on top of the details. In general, a common schedule is for the tax deposits to be due monthly by the 15th.

Payroll Software Can Help

Today, many companies rely on payroll software to help minimize the administrative and manual work of payroll. Today’s HR software has sophisticated features that help employers make sure payroll is executed accurately and according to regulations.

Some payroll systems can actually integrate with your payroll account and make the required deposits automatically, never missing a deadline. Want to learn more about how to make payroll and your federal tax deposit process run seamlessly?