Generally, you must deposit both the employer and employee social security and Medicare taxes and income tax withheld (minus any advance earned income credit payments) during the year by mailing or delivering a check, money order, or cash to an authorized financial institution. However, some employers are required to deposit by electronic funds transfer (see How To Deposit later).

Payment with return. Beginning in 2001, you may make payments with Form 943 instead of depositing if:

• Your net tax liability for the year (line 11 on Form 943) is less than $2,500, or
• You are making a payment in accordance with the Accuracy of deposits rule discussed later. This payment may be $2,500 or more. Caution: Only monthly schedule depositors, defined later, are allowed to make this payment with the return.

When To Deposit

Note: If you employ both farm and nonfarm workers, do not combine the taxes reportable on Form 941 and Form 943 to decide whether to make a deposit. See Employers of Both Farm and Nonfarm Workers at the end of this section.

The rules for determining when to deposit Form 943 taxes are discussed below. Under these rules, you are classified as either a monthly schedule depositor or a semiweekly schedule depositor.

The terms "monthly schedule depositor" and "semiweekly schedule depositor" do not refer to how often your business pays its employees, or how often you are required to make deposits. The terms identify which set of rules you must follow when you incur a tax liability.

The deposit schedule you must use for a calendar year is determined from the total taxes (not reduced by any advance EIC payments) reported on your Form 943 (line 9) for the lookback period, discussed next.

• If you reported $50,000 or less of Form 943 taxes for the lookback period, you are a monthly schedule depositor.
• If you reported more than $50,000 of Form 943 taxes for the lookback period, you are a semiweekly schedule depositor.

Lookback period. The lookback period is the second calendar year preceding the current calendar year. For example, the lookback period for 2001 is 1999.

Example of deposit schedule based on lookback period. Rose Co. reported taxes on Form 943 as follows:

• 1999 -- $48,000
• 2000 -- $60,000

Rose Co. is a monthly schedule depositor for 2001 because its taxes for the lookback period ($48,000 for calendar year 1999) were not more than $50,000. However, for 2002, Rose Co. is a semiweekly schedule depositor because the total taxes for its lookback period ($60,000 for calendar year 2000) exceeded $50,000.

Adjustments to lookback period taxes. To determine your taxes for the lookback period, use only the tax you reported on the original return ( Form 943, line 9). Do not include adjustments made on a supplemental return filed after the due date of the return. However, if you make adjustments on Form 943, the adjustments are included in the total tax for the period in which the adjustments are reported.

Example of adjustments. An employer originally reported total tax of $45,000 for the lookback period in 1999. The employer discovered during March 2000 that the tax during the lookback period was understated by $10,000 and corrected this error with an adjustment on the 2000 Form 943. The total tax reported in the lookback period is $45,000. The $10,000 adjustment is treated as part of the 2000 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 current year. You must deposit Form 943 taxes on payments made during a calendar month by the 15th day of the following month.

Monthly schedule example. Red Co. is a seasonal employer and a monthly schedule depositor. It pays wages each Friday. During January 2001 it paid wages but did not pay any wages during February. Red Co. must deposit the combined tax liabilities for the January paydays by February 15. Red Co. does not have a deposit requirement for February (i.e., due by March 15) because no wages were paid in February and, therefore, it did not have a tax liability for February.

New employers. During the first calendar year of your business, your taxes for the lookback period are considered to be zero. Therefore, you are a monthly schedule depositor for the first calendar year of your business (but see the $100,000 Next-Day Deposit Rule later).

Semiweekly Deposit Schedule

If the total tax reported on Form 943 for the lookback period is more than $50,000, you are a semiweekly schedule depositor for the current year. If you are a semiweekly schedule depositor, you must deposit on Wednesday and/or Friday depending on what day of the week you make payments, as follows:

Lookback Table

Deposit period. The term deposit period refers to the period during which tax liabilities are accumulated for each required deposit due date. For monthly schedule depositors, the deposit period is a calendar month. The deposit periods for semiweekly schedule depositors are Wednesday through Friday and Saturday through Tuesday.

The end of the calendar year always ends a semiweekly deposit period and begins a new one. For example, if the year ends on Thursday, taxes accumulated on the previous Wednesday and on Thursday are subject to one deposit obligation and taxes accumulated on Friday are subject to a separate obligation.

Semiweekly schedule example. Green Inc., a semiweekly schedule depositor, pays wages on the last day of each month. Green Inc. will deposit only once a month, but the deposit will be made under the semiweekly deposit schedule as follows. Green Inc.'s tax liability for the May 31, 2001 (Thursday) wage payment must be deposited by June 6, 2001 (Wednesday).

Deposits on Banking Days Only

If a deposit is required to be made on a day that is not a banking day, the deposit is considered timely if it is made by the next banking day. In addition to Federal and state bank holidays, Saturdays and Sundays are treated as nonbanking days. For example, if a deposit is required to be made on Friday, but Friday is not a banking day, the deposit is considered timely if it is made by the following Monday (if Monday is a banking day).

Semiweekly schedule depositors will always have 3 banking days to make a deposit. That is, if any of the 3 weekdays after the end of a semiweekly period is a banking holiday, you will have one additional banking day to deposit. For example, if a semiweekly schedule depositor accumulated taxes on Friday and the following Monday is not a banking day, the deposit normally due on Wednesday may be made on Thursday (allowing 3 banking days to make the deposit).

Payment With Return

Beginning in 2001, you may make a payment with Forms 943 or 945 instead of depositing if:

• You accumulate less than a $2,500 tax liability during the year (line 11 of Form 943 or line 4 of Form 945). However, if you are unsure that you will accumulate less than $2,500, deposit under the rules explained in this section so that you will not be subject to failure to deposit penalties, or
• You are a monthly schedule depositor and make a payment in accordance with the Accuracy of Deposits Rule discussed later. This payment may be $2,500 or more. Caution: Only monthly schedule depositors are allowed to make this payment with the return.

$100,000 Next-Day Deposit Rule

If you accumulate $100,000 or more of net Form 943 taxes (taxes reduced by any advance EIC payments) on any day during a deposit period, you must deposit the tax by the close of the next banking day, whether you are a monthly or a semiweekly schedule depositor. For monthly schedule depositors, the deposit period is a calendar month. For semiweekly schedule depositors, the deposit periods are Wednesday through Friday and Saturday through Tuesday.

For purposes of the $100,000 rule, do not continue accumulating taxes after the end of a deposit period. For example, if a semiweekly schedule depositor has accumulated taxes of $95,000 on Tuesday (end of a Saturday-through-Tuesday deposit period) and $10,000 on Wednesday, the $100,000 next-day deposit rule does not apply because the $10,000 is accumulated in the next deposit period. Thus, $95,000 must be deposited on Friday and $10,000 must be deposited on the following Wednesday.

In addition, once you accumulate at least $100,000 in a deposit period, stop accumulating at the end of that day and begin to accumulate anew on the next day. For example, Fir Co. is a semiweekly schedule depositor. On Monday, Fir Co. accumulates taxes of $110,000 and must deposit the tax on Tuesday, the next banking day. On Tuesday, Fir Co. accumulates additional taxes of $30,000. Because the $30,000 is not added to the previous $110,000 and is less than $100,000, Fir Co. must deposit the $30,000 by Friday using the normal semiweekly deposit schedule.

If you are a monthly schedule depositor and you accumulate a $100,000 tax liability on any day during a month, you become a semiweekly schedule depositor on the next day and remain so for the remainder 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 4, 2001. Because Elm Inc. is a new employer, the taxes for its lookback period are considered to be zero; therefore, Elm Inc. is a monthly schedule depositor. On May 11, Elm Inc. paid wages for the first time and accumulated taxes of $60,000. On May 18 (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 18, it must deposit $110,000 by May 21 (Monday), the next banking day.

Accuracy of Deposits Rule

You are required to deposit 100% of your tax liability on or before the deposit due date. However, penalties will not be applied for depositing less than 100% if both of the following conditions are met:

1. Any deposit shortfall does not exceed the greater of $100 or 2% of the amount of taxes otherwise required to be deposited, and
2. The deposit shortfall is paid or deposited by the shortfall makeup date as described below.

• Monthly Schedule Depositor--Deposit the shortfall or pay it with your return by the due date of Form 943. You may pay the shortfall with Form 943 even if the amount is $2,500 or more.
• Semiweekly Schedule Depositor--Deposit by the earlier of (1) the first Wednesday or Friday (whichever comes first) that falls on or after the 15th of the month following the month in which the shortfall occurred or (2) the due date for Form 943. For example, if a semiweekly schedule depositor has a deposit shortfall during February 2001, the shortfall makeup date is March 16, 2001 (Friday).

How To Deposit

The two methods of depositing employment taxes are discussed below. See page 10 for exceptions explaining when taxes may be paid with the tax return instead of deposited.

Electronic deposit requirement. You must make electronic deposits of all depository taxes (such as employment tax, excise tax, and corporate income tax) using the Electronic Federal Tax Payment System (EFTPS) in 2001 if:

• The total deposits of such taxes in 1999 was more than $200,000 or
• You were required to use EFTPS in 2000.

If you are required to use EFTPS and fail to do so, you may be subject to a 10% penalty. If you are not required to use EFTPS, you may participate voluntarily. To get more information or to enroll in EFTPS, call 1-800-555-4477 or 1-800-945-8400.

Depositing on time. For deposits made by EFTPS to be on time, you must initiate the transaction at least one business day before the date the deposit is due.

Making deposits with FTD coupons. If you are not making deposits by EFTPS, use Form 8109, Federal Tax Deposit Coupon, to make the deposits at an authorized financial institution.

For new employers, the IRS will send you a Federal Tax Deposit (FTD) coupon book 5 to 6 weeks after you receive an employer identification number (EIN). (Apply for an EIN on Form SS-4.) The IRS will keep track of the number of FTD coupons you use and automatically will send you additional coupons when you need them. If you do not receive your resupply of FTD coupons, call 1-800-829-1040. You can have the FTD coupon books sent to a branch office, tax preparer, or service bureau that is making your deposits by showing that address on Form 8109-C, FTD Address Change, which is in the FTD coupon book. (Filing Form 8109-C will not change your address of record; it will change only the address where the FTD coupons are mailed.) The FTD coupons will be preprinted with your name, address, and EIN. They have entry boxes for indicating the type of tax and the tax period for which the deposit is made.

It is very important to clearly mark the correct type of tax and tax period on each FTD coupon. This information is used by the IRS to credit your account.

If you have branch offices depositing taxes, give them FTD coupons and complete instructions so they can deposit the taxes when due.

Please use only your FTD coupons. If you use anyone else's FTD coupon, you may be subject to the failure to deposit penalty. This is because your account will be underpaid by the amount of the deposit credited to the other person's account. See Deposit Penalties later for details.

How to deposit with an FTD coupon. Mail or deliver each FTD coupon and a single payment covering the taxes to be deposited to an authorized depositary. An authorized depositary is a financial institution (e.g., a commercial bank) that is authorized to accept Federal tax deposits. Follow the instructions in the FTD coupon book. Make the check or money order payable to the depositary. To help ensure proper crediting of your account, include your EIN, the type of tax (e.g., Form 943), and tax period to which the payment applies on your check or money order.

Authorized depositaries must accept cash, a postal money order drawn to the order of the depositary, or a check or draft drawn on and to the order of the depositary. You may deposit taxes with a check drawn on another financial institution only if the depositary is willing to accept that form of payment.

Note: Be sure that the financial institution where you make deposits is an authorized depositary. Deposits made at an unauthorized institution may be subject to the failure to deposit penalty.

Depositing on time. The IRS determines if deposits are on time by the date they are received by an authorized depositary. To be considered timely, the funds must be available to the depositary on the deposit due date before the institution's daily cutoff deadline. Contact your local depositary for information concerning check clearance and cutoff schedules. However, a deposit received by the authorized depositary after the due date will be considered timely if the taxpayer establishes that it was mailed in the United States at least 2 days before the due date.

Note: If you are required to deposit any taxes more than once a month, any deposit of $20,000 or more must be made by its due date to be 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 Internal Revenue Service Center. Do not make the deposit at an authorized depositary. Make it payable to the "United States Treasury" 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 Form 8109-B, Federal Tax Deposit Coupon, in this situation.

Depositing without Form 8109. If you do not have the preprinted Form 8109, you may use Form 8109-B to make deposits. Form 8109-B is an over-the-counter FTD coupon that is not preprinted with your identifying information. You may get this form by calling 1-800-829-1040. Be sure to have your EIN ready when you call. You will not be able to obtain this form by calling 1-800-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 Forms 8109.

Deposit record. For your records, a stub is provided with each FTD coupon in the coupon book. The FTD coupon itself will not be returned. It is used to credit your account. Your check, bank receipt, or money order is your receipt.

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 use EFTPS when required. The penalties do not apply if any failure to make a proper and timely deposit was due to reasonable cause and not to willful neglect. For amounts not properly or timely deposited, the penalty 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 to amounts paid within 10 days of the date of the first notice the IRS sent 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 see Depositing without an EIN and Payment with Return earlier for exceptions).
10%	-	Amounts subject to electronic deposit requirements but not deposited using the Electronic Federal Tax Payment System (EFTPS).
15%	-	Amounts still unpaid more than 10 days after the date of the first notice the IRS sent asking for the tax due or the day on which you receive notice and demand for immediate payment, whichever is earlier.

Order in which deposits are applied. Generally, tax deposits are applied first to any past due undeposited amount within the same return period, with the oldest liability satisfied first. However, you may designate the period to which a deposit applies if you receive a penalty notice. You must respond within 90 days of the date of the notice. Follow the instructions on the notice you receive. For more information, see Rev. Proc. 99-10, 1999-1 C.B. 272.

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 deposit in full and applied $200 to the late May deposit. However, because deposits are applied first to past due underdeposits in due date order, $1,000 of the June 15 deposit is applied to the late May deposit. The remaining $700 is applied to the June 15 deposit. Therefore, in addition to an underdeposit of $1,000 for May 15, Cedar Inc. has an underdeposit for June 15 of $800. Penalties will be applied to both underdeposits as explained above. However, Cedar may contact the IRS within 90 days of the date of the notice to request that the deposits be applied differently.

Trust fund recovery penalty. If income, social security, and Medicare taxes that must be withheld are not withheld or are not deposited or paid to the United States Treasury, the trust fund recovery penalty may apply. The penalty is the full amount of the unpaid trust fund tax. This penalty may apply to you if these unpaid taxes cannot be immediately collected from the employer or business.

The trust fund recovery penalty may be imposed on all persons who are determined by the IRS to be responsible for collecting, accounting for, and paying over these taxes, and who acted willfully in not doing so.

A responsible person can be an officer or employee of a corporation, a partner or employee of a partnership, an accountant, a volunteer director/trustee, or an employee of a sole proprietorship. A responsible person also may include one who signs checks for the business or otherwise has authority to cause the spending of business funds.

Willfully means voluntarily, consciously, and intentionally. A responsible person acts willfully if the person knows the required actions are not taking place.

Employers of Both Farm and Nonfarm Workers

If you employ both farm and nonfarm workers, you must treat employment taxes for the farmworkers ( Form 943 taxes) separately from employment taxes for the nonfarm workers ( Form 941 taxes). Form 943 taxes and Form 941 taxes are not combined for purposes of applying any of the deposit schedule rules.

If a deposit is due, deposit the Form 941 taxes and the Form 943 taxes with separate FTD coupons, or by making separate EFTPS deposits. For example, if you are a monthly schedule depositor for both Forms 941 and 943 taxes and your tax liability at the end of April is $1,500 reportable on Form 941 and $1,200 reportable on Form 943, deposit both amounts by May 15. Use one FTD coupon to deposit the $1,500 of Form 941 taxes and another FTD coupon to deposit the $1,200 of Form 943 taxes.

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