September 22, 1992
IRS Finalizes Simplified
Payroll Tax Deposit Rules
Nearly six million employers will find rules for depositing
federal taxes easier under new regulations the Internal Revenue
Service finalized today. The new rules take effect January 1, 1993,
but include a one-year transition period to allow employers to
change their payroll systems.
The existing deposit rules are complex and require that
employers constantly monitor the amount of accumulated taxes
withheld from employees' paychecks. Ins some cases, deposits can
be required eight times each month and the deposit schedule can
change frequently. Employers had so much difficulty meeting the
deposit requirements that the IRS estimated that 30% of all
employers required to make deposits were penalized each year for
inadequate or late deposits.
In May, the IRS proposed changes to simplify and standardize
the system and asked for comments from the public, business and
payroll processors. IRS Commissioner Shirley D. Peterson thanked
the public, business owners and the payroll community for their
suggestions on ways to improve the regulations. "Together, we've
made a significant step in reducing the burden on business taxpayers
while strengthening the important federal tax deposit system,"
Commissioner Peterson said.
Under the new regulations, employers will deposit withheld
taxes on either a monthly or semi-weekly basis. The determination
of which deposit schedule applies will be made by looking back at
the employment taxes reported for a 12-month lookback period -- July
! through June 30 of the prior year. The IRS will tell employers by
November each year which schedule they will follow for the coming
Employers who reported $50,000 or less will deposit monthly.
More than 75 percent of all employers -- and most small business
employers -- will qualify as monthly depositors. These deposits
will be due by the 15th day of the following month.
Employers who will deposit semi-weekly are those who reported
over $50,000 during the lookback period. For paydays on Wednesday,
Thursday, or Friday, the deposit will be due by the Wednesday after
the payday. For all other paydays, the deposit will be due by the
Friday following payday.
Whether monthly or semi-weekly, employers always will have at
least three banking days after the payday to make the deposit. The
IRS noted that all new employers will be monthly depositors.
The regulations also contain special rules and exceptions which
carry over from the present rules. Employers accumulating $100,000
during a monthly or semi-weekly period must deposit by the next
banking day. Also, employers accumulating less than $500 during the
quarter may skip the deposits altogether and send full payment with
their quarterly employment tax returns.
As a safe harbor, an employer who underdeposits will not be
penalized if the shortfall is $100 or less or less than two percent
of the amount which should have been deposited.
The regulations, which will be published in the Federal
Register on September 24, contain special rules for holidays and for
railroad and farmworker employers. The new deposit rules do not
apply to domestic household employers.
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