7. Deposit Requirements Generally, you must deposit both the employer and employee socialsecurity and Medicare taxes and income tax withheld (minus any advanceearned income credit payments) during the year by mailing ordelivering a check, money order, or cash to an authorized financialinstitution or Federal Reserve bank. However, some employers arerequired to deposit by electronic funds transfer (see How ToDeposit later). Exception to deposit requirement.You may make payments with Form 943 instead of depositing if: Your net tax liability for the year (line 11 on Form 943) isless than $1,000, or You are making a payment in accordance with theAccuracy of deposits rule discussed later. This payment maybe $1,000 or more. Caution: Only monthly scheduledepositors, defined later, are allowed to make this payment with thereturn. When To Deposit Note:If you employ both farm and nonfarm workers, do notcombine the taxes reportable on Form 941 and Form 943 todecide whether to make a deposit. See Employers of BothFarm and Nonfarm Workers at the end of this section. The rules for determining when to deposit Form 943 taxes arediscussed below. Under these rules, you are classified as either amonthly schedule depositor or a semiweekly scheduledepositor. The terms "monthly schedule depositor" and "semiweeklyschedule depositor" do not refer to how often yourbusiness pays its employees, or how often you are required to makedeposits. The terms identify which set of rules you must follow whenyou incur a tax liability. The deposit schedule you must use for a calendar year is determinedfrom the total taxes (not reduced by any advance EIC payments)reported on your Form 943 (line 9) for the lookback period, discussednext. If you reported $50,000 or less of Form 943 taxesfor the lookback period, you are a monthly schedule depositor. If you reported more than $50,000 of Form 943taxes for the lookback period, you are a semiweekly scheduledepositor. Lookback period.The lookback period is the second calendar year preceding thecurrent calendar year. For example, the lookback period for 2000 is1998. Example of deposit schedule based on lookback period.Rose Co. reported taxes on Form 943 as follows: 1998 -- $48,000 1999 -- $60,000 Rose Co. is a monthly schedule depositor for 2000 because its taxesfor the lookback period ($48,000 for calendar year 1998) were not morethan $50,000. However, for 2001, Rose Co. is a semiweekly scheduledepositor because the total taxes for its lookback period ($60,000 forcalendar year 1999) exceeded $50,000. Adjustments to lookback period taxes.To determine your taxes for the lookback period, use only the taxyou reported on the original return (Form 943, line 9). Do notinclude adjustments made on a supplemental return filed afterthe due date of the return. However, if you make adjustments on Form943, the adjustments are included in the total tax for the period inwhich the adjustments are reported. Example of adjustments.An employer originally reported total tax of $45,000 for thelookback period in 1998. The employer discovered during March 1999that the tax during the lookback period was understated by $10,000 andcorrected this error with an adjustment on the 1999 Form 943. Thetotal tax reported in the lookback period is $45,000. The $10,000adjustment is treated as part of the 1999 taxes. Monthly Deposit Schedule If the total tax reported on Form 943 for the lookback period is$50,000 or less, you are a monthly schedule depositor for the currentyear. You must deposit Form 943 taxes on payments made during acalendar month by the 15th day of the following month. Monthly schedule example.Red Co. is a seasonal employer and a monthly schedule depositor. Itpays wages each Friday. During January 2000 it paid wages but did notpay any wages during February. Red Co. must deposit the combined taxliabilities for the January paydays by February 15. Red Co. does nothave a deposit requirement for February (i.e., due by March 15)because no wages were paid in February and, therefore, it did not havea tax liability for February. New employers.During the first calendar year of your business, your taxes for thelookback period are considered to be zero. Therefore, you are amonthly schedule depositor for the first calendar year of yourbusiness (but see the $100,000 Next-Day Deposit Rulelater). Semiweekly Deposit Schedule If the total tax reported on Form 943 for the lookback period ismore than $50,000, you are a semiweekly schedule depositor for thecurrent year. If you are a semiweekly schedule depositor, you mustdeposit on Wednesday and/or Friday depending on what day of the weekyou make payments, as follows: Lookback Table Deposit period.The term deposit period refers to the period duringwhich tax liabilities are accumulated for each required deposit duedate. For monthly schedule depositors, the deposit period is acalendar month. The deposit periods for semiweekly schedule depositorsare Wednesday through Friday and Saturday through Tuesday. The end of the calendar year always ends a semiweekly depositperiod and begins a new one. For example, if the year ends onThursday, taxes accumulated on the previous Wednesday and on Thursdayare subject to one deposit obligation and taxes accumulated on Fridayare subject to a separate obligation. Semiweekly schedule example.Green Inc., a semiweekly schedule depositor, pays wages on the lastday of each month. Green Inc. will deposit only once a month, but thedeposit will be made under the semiweekly deposit schedule as follows.Green Inc.'s tax liability for the May 31, 2000 (Wednesday) must bedeposited by June 7, 2000 (Wednesday). Deposits on Banking Days Only If a deposit is required to be made on a day that is not a bankingday, the deposit is considered timely if it is made by the nextbanking day. In addition to Federal and state bank holidays, Saturdaysand Sundays are treated as nonbanking days. For example, if a depositis required to be made on Friday, but Friday is not a banking day, thedeposit is considered timely if it is made by the following Monday (ifMonday is a banking day). Semiweekly schedule depositors will always have 3 banking days tomake a deposit. That is, if any of the 3 weekdays after the end of asemiweekly period is a banking holiday, you will have one additionalbanking day to deposit. For example, if a semiweekly scheduledepositor accumulated taxes on Friday and the following Monday is nota banking day, the deposit normally due on Wednesday may be made onThursday (allowing 3 banking days to make the deposit). $1,000 Rule If you accumulate less than $1,000 of net Form 943 taxes (taxesreduced by any advance EIC payments) during the year (line 11 of Form943), no deposits are required. You may pay the tax with Form 943.However, if you are unsure that you will accumulate less than $1,000for the year, deposit under the appropriate rules so that you will notbe subject to failure to deposit penalties. $100,000 Next-Day Deposit Rule If you accumulate $100,000 or more of net Form 943 taxes (taxesreduced by any advance EIC payments) on any day during a depositperiod, you must deposit the tax by the close of the next banking day,whether you are a monthly or a semiweekly schedule depositor. Formonthly schedule depositors, the deposit period is a calendar month.For semiweekly schedule depositors, the deposit periods are Wednesdaythrough Friday and Saturday through Tuesday. For purposes of the $100,000 rule, do not continue accumulatingtaxes after the end of a deposit period. For example, if a semiweeklyschedule depositor has accumulated taxes of $95,000 on Tuesday (end ofa Saturday-through-Tuesday deposit period) and $10,000 on Wednesday,the $100,000 next-day deposit rule does not apply because the $10,000is accumulated in the next deposit period. Thus, $95,000 must bedeposited on Friday and $10,000 must be deposited on the followingWednesday. In addition, once you accumulate at least $100,000 in a depositperiod, stop accumulating at the end of that day and begin toaccumulate anew on the next day. For example, Fir Co. is a semiweeklyschedule depositor. On Monday, Fir Co. accumulates taxes of $110,000and must deposit the tax on Tuesday, the next banking day. On Tuesday,Fir Co. accumulates additional taxes of $30,000. Because the $30,000is not added to the previous $110,000 and is less than $100,000, FirCo. must deposit the $30,000 by Friday using the normal semiweeklydeposit schedule. If you are a monthly schedule depositor and you accumulate a$100,000 tax liability on any day during a month, you become asemiweekly schedule depositor on the next day and remain so for theremainder of the calendar year and for the following calendar year. Example of the $100,000 next-day deposit rule.Elm Inc. started business on May 5, 2000. Because Elm Inc. is a newemployer, the taxes for its lookback period are considered to be zero;therefore, Elm Inc. is a monthly schedule depositor. On May 12, ElmInc. paid wages for the first time and accumulated taxes of $60,000.On May 19 (Friday), Elm Inc. paid wages and accumulated taxes of$50,000, for a total of $110,000. Because Elm Inc. accumulated$110,000 on May 19, it must deposit $110,000 by May 22 (Monday), thenext banking day. Accuracy of Deposits Rule You are required to deposit 100% of your tax liability on or beforethe deposit due date. However, penalties will not be applied fordepositing less than 100% if both of the followingconditions are met: Any deposit shortfall does not exceed the greater of $100 or2% of the amount of taxes otherwise required to be deposited,and The deposit shortfall is paid or deposited by the shortfallmakeup date as described below. Monthly Schedule Depositor--Deposit theshortfall or pay it with your return by the due date of Form 943. Youmay pay the shortfall with Form 943 even if the amount is $1,000 ormore. Semiweekly Schedule Depositor--Deposit bythe earlier of (1) the first Wednesday or Friday (whichever comesfirst) that falls on or after the 15th of the month following themonth in which the shortfall occurred or (2) the due date for Form943. For example, if a semiweekly schedule depositor has a depositshortfall during February 2000, the shortfall makeup date is March 15,2000 (Wednesday). How To Deposit The two methods of depositing employment taxes are discussed below.See page 9 for exceptions explaining when taxes may be paid with thetax return instead of deposited. Electronic deposit requirement.You must make electronic deposits of all depository taxliabilities that occur after 1999 if the total of all yourFederal tax deposits (such as employment tax, excise tax, andcorporate income tax) in 1998 were more than $200,000. If you arealready depositing electronically but your deposits did not exceed$200,000, you may continue to do so or you may deposit with coupons,discussed below. The Electronic Federal Tax Payment System (EFTPS) mustbe used to make electronic deposits. If you are required to makedeposits by electronic funds transfer and fail to do so, you may besubject to a 10% penalty. Taxpayers who are not required to make electronic deposits mayvoluntarily participate in EFTPS. To enroll in EFTPS, call1-800-555-4477 or 1-800-945-8400. For general information about EFTPS,call 1-800-829-1040. Depositing on time.For deposits made by EFTPS to be on time, you must initiate thetransaction at least one business day before the date the deposit isdue. Making deposits with FTD coupons.If you are not making deposits by EFTPS, use Form 8109, Federal Tax Deposit Coupon, to makethe deposits at an authorized financial institution or Federal Reservebank. For new employers, the IRS will send you a Federal Tax Deposit(FTD) coupon book 5 to 6 weeks after you receive an employeridentification number (EIN). (Apply for an EIN on Form SS-4.) The IRSwill keep track of the number of FTD coupons you use andautomatically will send you additional coupons when youneed them. If you do not receive your resupply of FTD coupons, call1-800-829-1040. You can have the FTD coupon books sent to a branchoffice, tax preparer, or service bureau that is making your depositsby showing that address on Form 8109-C, FTD Address Change,which is in the FTD coupon book. (Filing Form 8109-C will not changeyour address of record; it will change only the address where the FTDcoupons are mailed.) The FTD coupons will be preprinted with yourname, address, and EIN. They have entry boxes for indicating the typeof tax and the tax period for which the deposit is made. It is very important to clearly mark the correct type of tax andtax period on each FTD coupon. This information is used by the IRS tocredit your account. If you have branch offices depositing taxes, give them FTD couponsand complete instructions so they can deposit the taxes when due. Please use only your FTD coupons. If you use anyone else's FTDcoupon, you may be subject to the failure to deposit penalty. This isbecause your account will be underpaid by the amount of the depositcredited to the other person's account. See Deposit Penaltieslater for details. How to deposit with an FTD coupon.Mail or deliver each FTD coupon and a single payment covering thetaxes to be deposited to an authorized depositary or to the FederalReserve bank or branch (FRB) serving your area. An authorizeddepositary is a financial institution (e.g., a commercial bank) thatis authorized to accept Federal tax deposits. Follow the instructionsin the FTD coupon book. Make the check or money order payable to thedepositary or FRB where you make your deposit. To help ensure propercrediting of your account, include your EIN, the type of tax (e.g.,Form 943), and tax period to which the payment applies on your checkor money order. Authorized depositaries must accept cash, a postal money orderdrawn to the order of the depositary, or a check or draft drawn on andto the order of the depositary. You may deposit taxes with a checkdrawn on another financial institution only if the depositary iswilling to accept that form of payment. Note: Be sure that the financial institution where you make depositsis an authorized depositary. Deposits made at an unauthorizedinstitution may be subject to the failure to deposit penalty. Federal Reserve banks (FRBs).If you want to make a deposit at an FRB, make the deposit with theFRB serving your area. Deposits may be subject to the failure todeposit penalty if the payment is not considered an immediate credititem on the day it is received by the FRB. A personal check, includingone drawn on a business account, is not an immediate credit item. Toavoid a penalty, deposits made by personal checks drawn on otherfinancial institutions must be made in advance of the deposit due dateto allow time for check clearance. Depositing on time.The IRS determines if deposits are on time by the date they arereceived by an authorized depositary or FRB. To be considered timely,the funds must be available to the depositary or FRB on the depositdue date before the institution's daily cutoff deadline. Contact yourlocal depositary or FRB for information concerning check clearance andcutoff schedules. However, a deposit received by the authorizeddepositary or FRB after the due date will be considered timely if thetaxpayer establishes that it was mailed in the United States at least2 days before the due date. Note: If you are required to deposit any taxes more than once amonth, any deposit of $20,000 or more must be made by its due date tobe timely. Depositing without an EIN.If you have applied for an EIN but have not received it,and you must make a deposit, make the deposit with your InternalRevenue Service Center. Do not make the deposit at anauthorized depositary or FRB. Make it payable to the "United StatesTreasury" and show on it your name (as shown on Form SS-4),address, kind of tax, period covered, and date you applied for an EIN.Send an explanation with the deposit. Do not use Form8109-B, Federal Tax Deposit Coupon, in this situation. Depositing without Form 8109.If you do not have the preprinted Form 8109, you may use Form8109-B to make deposits. Form 8109-B is an over-the-counter FTD couponthat is not preprinted with your identifying information. You may getthis form by calling 1-800-829-1040. Be sure to have your EIN readywhen you call. You will not be able to obtain this form by calling1-800-TAX-FORM. Use Form 8109-B to make deposits only if-- You are a new employer and you have been assigned an EIN,but you have not received your initial supply of Forms 8109 or You have not received your resupply of preprinted Forms8109. Deposit record.For your records, a stub is provided with each FTD coupon in thecoupon book. The FTD coupon itself will not be returned. It is used tocredit your account. Your check, bank receipt, or money order is yourreceipt. Deposit Penalties Penalties may apply if you do not make required deposits on time,make deposits for less than the required amount, or if you do not useEFTPS when required. The penalties do not apply if any failure to makea proper and timely deposit was due to reasonable cause and not towillful neglect. For amounts not properly or timely deposited, thepenalty rates are: 2% - Deposits made 1 to 5 days late. 5% - Deposits made 6 to 15 days late. 10% - Deposits made 16 or more days late. Also applies toamounts paid within 10 days of the date of the first notice the IRSsent asking for the tax due. 10% - Deposits made at an unauthorized financial institution,paid directly to the IRS, or paid with your tax return (but seeDepositing without an EIN and Exception to depositrequirement earlier for exceptions). 10% - Amounts subject to electronic deposit requirements butnot deposited using the Electronic Federal Tax Payment System(EFTPS). 15% - Amounts still unpaid more than 10 days after the dateof the first notice the IRS sent asking for the tax due or the day onwhich you receive notice and demand for immediate payment, whicheveris earlier. Order in which deposits are applied.Generally, tax deposits are applied first to any past dueundeposited amount within the same return period, with the oldestliability satisfied first. However, you may designate the period towhich a deposit applies if you receive a penalty notice. You mustrespond within 90 days of the date of the notice. Follow theinstructions on the notice you receive. For more information, see Rev.Proc. 99-10, 1999-2 I.R.B. 11. Example: Cedar Inc. is required to make a deposit of $1,000 on May 15 and$1,500 on June 15. It does not make the deposit on May 15. On June 15,Cedar Inc. deposits $1,700 assuming that it has paid its June depositin full and applied $200 to the late May deposit. However, becausedeposits are applied first to past due underdeposits in due dateorder, $1,000 of the June 15 deposit is applied to the late Maydeposit. The remaining $700 is applied to the June 15 deposit.Therefore, in addition to an underdeposit of $1,000 for May 15, CedarInc. has an underdeposit for June 15 of $800. Penalties will beapplied to both underdeposits as explained above. However, Cedar maycontact the IRS within 90 days of the date of the notice to requestthat the deposits be applied differently. Trust fund recovery penalty.If income, social security, and Medicare taxes that must bewithheld are not withheld or are not deposited or paid to the UnitedStates Treasury, the trust fund recovery penalty may apply. Thepenalty is the full amount of the unpaid trust fund tax. This penaltymay apply to you if these unpaid taxes cannot be immediately collectedfrom the employer or business. The trust fund recovery penalty may be imposed on all persons whoare determined by the IRS to be responsible for collecting,accounting for, and paying over these taxes, and who actedwillfully in not doing so. A responsible person can be an officer or employee of acorporation, a partner or employee of a partnership, an accountant, avolunteer director/trustee, or an employee of a sole proprietorship. Aresponsible person also may include one who signs checks for thebusiness or otherwise has authority to cause the spending of businessfunds. Willfully means voluntarily, consciously, andintentionally. A responsible person acts willfully if the person knowsthe required actions are not taking place. Employers of Both Farm and Nonfarm Workers If you employ both farm and nonfarm workers, you must treatemployment taxes for the farmworkers (Form 943 taxes) separately fromemployment taxes for the nonfarm workers (Form 941 taxes). Form 943taxes and Form 941 taxes are not combined for purposes of applying anyof the deposit schedule rules. If a deposit is due, deposit the Form 941 taxes and the Form 943taxes with separate FTD coupons, or by making separate EFTPS deposits.For example, if you are a monthly schedule depositor for both Forms941 and 943 taxes and your tax liability at the end of April is $1,500reportable on Form 941 and $1,200 reportable on Form 943, deposit bothamounts by May 15. Use one FTD coupon to deposit the $1,500 of Form941 taxes and another FTD coupon to deposit the $1,200 of Form 943taxes.