You must deposit social security and Medicare taxes if your tax liability (line 10 of Form 941-SS or line 11 of Form 943) is $2,500 or more for the tax return period. You make the deposits either electronically or with paper coupons. These methods are discussed later.

Payment with Return

You may make a payment with Forms 941-SS or 943 instead of depositing if:

• You accumulate less than a $2,500 tax liability during the return period (line 10 of Form 941-SS or line 11 of Form 943) and you pay in full with a timely filed return. 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.

Only monthly schedule depositors are allowed to make this payment with the return.

When To Deposit

Note: Under the rules discussed below, the only difference between farm and nonfarm workers' employment tax deposit rules is the lookback period. Therefore, farm and nonfarm workers are discussed together except where noted.

Depending on your total taxes reported during a lookback period (discussed below), you are 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 you pay your employees or how often you are required to make deposits. The terms identify which set of rules you must follow when a tax liability arises (when you have a payday).

You will need to determine your deposit schedule for a calendar year based on the total employment taxes reported on line 10 of Form 941-SS, line 11 of Form 941, or line 9 of Form 943 for your lookback period (defined below). If you filed both Forms 941-SS and 941 during the lookback period, combine the tax liabilities for these returns for purposes of determining your deposit schedule. Determine your deposit schedule for Form 943 separately from Forms 941-SS and 941.

Lookback period for employers of nonfarm workers. The lookback period for Form 941-SS (or Form 941) consists of 4 quarters beginning July 1 of the second preceding year and ending June 30 of the prior year. These 4 quarters are your lookback period even if you did not report any taxes for any of the quarters. For 2002, the lookback period is July 1, 2000, through June 30, 2001.

Lookback period for employers of farmworkers. The lookback period for Form 943 is the second calendar year preceding the current calendar year. The lookback period for calendar year 2002 is calendar year 2000.

Adjustments to lookback period taxes. To determine your taxes for the lookback period, use only the tax you reported on the original returns (Forms 941-SS, 941, or 943). Do not include adjustments made on a supplemental return filed after the due date of the return. However, if you make adjustments on Form 941-SS or 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 taxes of $45,000 for the lookback period. The employer discovered during February 2002 that the tax during the lookback period was understated by $10,000 and corrected this error with an adjustment on the 2002 first quarter Form 941-SS. The employer is a monthly schedule depositor for 2002 because the lookback period tax liabilities are based on the amounts originally reported, and they were less than $50,000. The $10,000 adjustment is treated as part of the 2002 taxes.

Monthly Deposit Schedule

If the total tax reported for the lookback period is $50,000 or less, you are a monthly schedule depositor for the current year. You must deposit taxes on payments made during a calendar month by the 15th day of the following month.

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 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 wage payments, as follows:

• Deposit taxes on payments made on Wednesday, Thursday, and/or Friday by the following Wednesday.
• Deposit taxes on payments made on Saturday, Sunday, Monday, and/or Tuesday by the following Friday.

Semiweekly deposit period spanning two quarters. If you have more than one pay date during a semiweekly period, and the pay dates fall in different calendar quarters, you will need to make separate deposits for the separate liabilities. For example, if you have a pay date on Saturday March 30, 2002 (first quarter), and another pay date on Tuesday, April 2, 2002 (second quarter), two separate deposits would be required even though the pay dates fall within the same semiweekly period. both deposits would be due Friday, April 5, 2002 (three banking days from the end of the semiweekly deposit period).

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.

Examples of Monthly and Semiweekly Schedules

Employers of nonfarm workers. Rose Co. reported Form 941-SS taxes as follows:

	2001 Lookback Period
3rd Quarter 1999	--	$12,000
4th Quarter 1999	--	$12,000
1st Quarter 2000	--	$12,000
2nd Quarter 2000	--	$12,000
		$48,000
	2002 Lookback Period
3rd Quarter 2000	--	$12,000
4th Quarter 2000	--	$12,000
1st Quarter 2001	--	$12,000
2nd Quarter 2001	--	$15,000
		$51,000

Rose Co. is a monthly schedule depositor for 2001 because its taxes for the 4 quarters in its lookback period ($48,000 for the 3rd quarter of 1999 through the 2nd quarter of 2000) were not more than $50,000. However, for 2002, Rose Co. is a semiweekly schedule depositor because the total taxes for the 4 quarters in its lookback period ($51,000 for the 3rd quarter of 2000 through the 2nd quarter of 2001) exceeded $50,000.

Employers of farmworkers. Red Co. reported taxes on its 1999 Form 943 of $48,000. On its 2000 Form 943, it reported taxes of $60,000.

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

Deposits on Banking Days Only

If a deposit due date falls on a day that is not a banking day, the deposit is considered timely if it is made by the close of 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 at least 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 for payments made 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).

Application of Monthly and Semiweekly Schedules

The examples below illustrate the procedure for determining the deposit date under the two different deposit schedules.

Monthly schedule example. Green Inc. is a seasonal employer and a monthly schedule depositor. It pays wages each Friday. During January 2002, it paid wages but did not pay any wages during February. Green Inc. must deposit the combined tax liabilities for the January paydays by February 15. Green Inc. does not have a deposit requirement for February (due by March 15) because no wages were paid in February and, therefore, it did not have a tax liability for February.

Semiweekly schedule example. Blue Co., a semiweekly schedule depositor, pays wages on the last day of the month. Blue Co. will deposit only once a month because it pays wages only once a month, but the deposit will be made under the semiweekly deposit schedule as follows. Blue Co.'s tax liability for the April 30, 2002 (Tuesday) payday must be deposited by May 3, 2002 (Friday).

$100,000 Next-Day Deposit Rule

If you accumulate taxes of $100,000 or more on any day during a deposit period, you must deposit 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 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 by Friday and $10,000 must be deposited by 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 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 $100,000 next-day deposit rule. Elm Inc. started business on May 3, 2002. 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 10, Elm Inc. paid wages for the first time and accumulated taxes of $40,000. On May 17 (Friday), Elm Inc. paid wages and accumulated taxes of $60,000, for a total of $100,000. Because Elm Inc. accumulated $100,000 on May 17, it must deposit $100,000 by May 20 (Monday), the next banking day. Elm Inc. immediately becomes a semiweekly schedule depositor for the remainder of 2002 and for 2003 but may be subject to the $100,000 next-day deposit rule if it accumulates $100,000 again in any semiweekly deposit period.

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 next.

Makeup date for deposit shortfall:

• Monthly schedule depositor. Deposit or pay the shortfall or pay it with your return by the due date of the Form 941-SS (or 943) for the period in which the shortfall occurred. You may pay the shortfall with your return even if the amount is $2,500 or more.
• Semiweekly schedule depositor. Deposit by the earlier of the (1) first Wednesday or Friday (whichever comes first) that comes on or after the 15th of the month following the month in which the shortfall occurred or (2) the return due date for the period in which the shortfall occurred. For example, if a semiweekly schedule depositor has a deposit shortfall during February 2002, the shortfall makeup date is March 20, 2002 (Wednesday). However, if the shortfall occurred on the required April 3 (Wednesday) deposit date for a March 29 (Friday) pay date, the return due date for the March 29 tax liability (April 30) would come before the May 15 (Wednesday) shortfall makeup date. In this case, the shortfall must be deposited by April 30.

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-SS taxes). Form 943 taxes and Form 941-SS taxes are not combined for purposes of applying any of the deposit rules.

If a deposit is due, deposit the Form 941-SS taxes and Form 943 taxes separately, as discussed next.

How To Deposit

The two methods of depositing employment taxes are discussed next. See Payment With Return on page 7 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 2002 if:

• The total deposits of such taxes in 2000 were more than $200,000 or
• You were required to use EFTPS in 2001.

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, 1-800-945-8400, or 1-720-332-3725 (not a toll-free call), or visit the EFTPS Web Site at www.eftps.gov.

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 941-SS), 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. 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.

If you prefer, you may mail your coupon and payment to Financial Agent, Federal Tax Deposit Processing, P.O. Box 970030, St. Louis, MO 63197. Make your check or money order payable to Financial Agent.

Depositing on time. The IRS determines whether 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 daily cutoff deadline. 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 (including U.S. Territories) at least 2 days before the due date.

If you hand deliver your deposit to the depositary on the due date, be sure to deliver it before the depositary closes its business day.

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 the IRS. 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.

How to claim credit for overpayments. If you deposited more than the right amount of taxes for a quarter, you can choose on Form 941-SS for that quarter to have the overpayment refunded or applied as a credit to your next return. Do not ask the depositary or EFTPS to request a refund from the IRS for you.

Deposit Penalties

Penalties may apply if you do not make required deposits on time. 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 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. Beginning in 2002, deposits generally are applied to the most recent tax liability within the return period (quarter or year). For examples on how the IRS will apply deposits, see Rev. Proc. 2001-58 (2001-50 I.R.B. 579). Before 2002, deposits generally were applied first to the oldest tax liability. However, if you receive a failure-to-deposit penalty notice, you may designate how your payment is to be applied in order to minimize the amount of the penalty. Follow the instructions on the penalty notice you receive. For more information on designating deposits, see Rev. Proc. 99-10, 1999-1 C.B. 272. You can find Rev. Proc. 99-10 on page 11 of Internal Revenue Bulletin 1999-2 at www.irs.gov.

Example: Cedar Inc. is required to make a deposit of $1,000 on April 15 and $1,500 on May 15. It does not make the deposit on April 15. On May 15, Cedar Inc. deposits $2,000. Under the new rule, which applies deposits to the most recent tax liability, $1,500 of the deposit is applied to the May 15 deposit and the remaining $500 is applied to the April deposit. Accordingly, $500 of the April 15 liability remains undeposited. The penalty on this underdeposit will apply as explained above.

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.

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