Payroll Tax Deposits: Know the Rules

Tax + FICA + Medicare

Payroll taxes consist of three components:

• Federal income tax withheld from employee paychecks
• FICA tax withheld from employee paychecks (6.2% up to the Social Security Taxable Wage Base, which is $137,700 in 2020 and $142,800 in 2021) plus the same amount as the employer contribution to FICA
• Medicare tax withheld from employee paychecks (1.45% with no wage limit plus an additional .9% withheld for earnings above $200,000), for a total employee withholding rate of 2.35% for those earning more than $200,000 in a year. Employers only have to match the 1.45%.

This all adds up to a 12.4% FICA tax and a 2.9% Medicare tax.

In general, you must deposit federal income tax withheld and both the employer and employee social security and Medicare taxes. You must use electronic funds transfer (EFTPS) to make all federal tax deposits.

There are two deposit schedules, monthly and semi-weekly. Before the beginning of each calendar year, you need to determine which of the two deposit schedules you are required to use by looking back at taxes you reported on previous Forms 941. The lookback period is the four quarters from July 1 to the following June 30 in a previous year. For instance, the lookback period to determine your filing status for calendar year 2020 is July 1, 2018 through June 30, 2019.

If you reported $50,000 or less in payroll taxes for the lookback period, you’re a monthly depositor; if you reported more than $50,000, you’re subject to the semi-weekly schedule.

Monthly Depositor

Under the monthly deposit schedule, deposit employment taxes on payments made during a month by the 15th day of the following month. Employers who deposit monthly should only report their deposits quarterly or annually by filing Form 941 or Form 944.

Semi-weekly Depositor

Under the semiweekly deposit schedule, deposit employment taxes for payments made on Wednesday, Thursday, and/or Friday by the following Wednesday. Deposit taxes for payments made on Saturday, Sunday, Monday, and/or Tuesday by the following Friday. Report your deposits quarterly or annually only by filing Form 941 or Form 944.

More information is available on the IRS website by clicking here.