Publication 80 (2008), (Circular SS),

IRS Resources

Publication 80 - Main Contents

Table of Contents

Introduction

This publication is for employers whose principal place of business is in the U.S. Virgin Islands, Guam, American Samoa, or the Commonwealth of the Northern Mariana Islands, or who have employees who are subject to income tax withholding for any of these jurisdictions. Employers and employees in these areas are generally subject to social security and Medicare taxes under the Federal Insurance Contributions Act (FICA). This publication summarizes employer responsibilities to collect, pay, and report these taxes.

Whenever the term “United States” is used in this publication, it includes the U.S. Virgin Islands, Guam, American Samoa, and the Commonwealth of the Northern Mariana Islands.

This publication also provides employers in the U.S. Virgin Islands with a summary of their responsibilities in connection with the tax under the Federal Unemployment Tax Act, known as FUTA tax. See section 11.

Except as shown in the table in section 12, social security, Medicare, and FUTA taxes apply to every employer who pays taxable wages to employees or who has employees who report tips.

This publication does not include information relating to the self-employment tax (for social security and Medicare of self-employed persons). See Publication 570, Tax Guide for Individuals With Income From U.S. Possessions, if you need this information.

This publication also does not include information relating to income tax withholding. In the U.S. Virgin Islands, Guam, American Samoa, or the Commonwealth of the Northern Mariana Islands, contact your local tax department for information about income tax withholding. See Publication 15 (Circular E), Employer's Tax Guide, for information on U.S. federal income tax withholding.

Tax help. For federal employment tax information, employers in the U.S. Virgin Islands may call 1-800-829-4933 (toll free). All others may call 215-516-2000 (toll call). If you are in the U.S. Virgin Islands and have access to TTY/TDD equipment, call 1-800-829-4059 with your tax question or to order forms and publications.

If you are an employer in the Commonwealth of the Northern Mariana Islands, contact the Division of Revenue and Taxation at 670-664-1000 to get Form W-2CM and the instructions for completing and filing that form.

How To Get Forms and Publications

Internet. You can access the IRS website at www.irs.gov 24 hours a day, 7 days a week to:

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Get information on starting and operating a small business.

By phone. U.S. Virgin Islands employers can order forms and publications 24 hours a day, 7 days a week, toll free, by calling 1-800-TAX-FORM (1-800-829-3676). Others may call 215-516-2000 (toll call).

Comments and Suggestions. We welcome your comments about this publication and your suggestions for future editions.

You can write to us at the following address:

Internal Revenue Service
Tax Products Coordinating Committee
SE:W:CAR:MP:T:T:SP
1111 Constitution Ave. NW, IR-6526
Washington, DC 20224

We respond to many letters by telephone. Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence.

You can email us at *taxforms@irs.gov. (The asterisk must be included in the address.) Please put “Publications Comment” on the subject line. Although we cannot respond individually to each email, we do appreciate your feedback and will consider your comments as we revise our tax products.

1. Who Are Employees?

Generally, employees are defined either under common law or under special statutes for certain situations.

Employee status under common law. Generally, a worker who performs services for you is your employee if you can control what will be done and how it will be done. This is so even when you give the employee freedom of action. What matters is that you have the right to control the details of how the services are performed. See Publication 15-A, Employer's Supplemental Tax Guide, for more information on how to determine whether an individual providing services is an independent contractor or an employee.

Statutory employees. There are also some special definitions of employees for social security, Medicare, and FUTA taxes.

While the following persons may not be common law employees, they are considered employees for social security and Medicare purposes if the conditions under Tests below are met.

a. An agent (or commission) driver who delivers food or beverages (other than milk) or picks up and delivers laundry or dry cleaning for someone else.

b. A full-time life insurance salesperson who sells primarily for one company.

c. A homeworker who works by the guidelines of the person for whom the work is done, with materials furnished by and returned to that person or to someone that person designates.

d. A traveling or city salesperson (other than an agent-driver or commission-driver) who works full time (except for sideline sales activities) for one firm or person getting orders from customers. The orders must be for items for resale or use as supplies in the customer's business. The customers must be retailers, wholesalers, contractors, or operators of hotels, restaurants, or other businesses dealing with food or lodging.

Tests. Withhold social security and Medicare taxes from statutory employees' wages if all three of the following tests apply.

The service contract states or implies that almost all of the services are to be performed personally by them.
They have little or no investment in the equipment and property used to perform the services (other than an investment in transportation facilities).
The services are performed on a continuing basis for the same payer.

Persons in a or d above are also employees for FUTA tax purposes if tests 1 through 3 are met (U.S. Virgin Islands only).

Publication 15-A gives examples of the employer-employee relationship.

Statutory nonemployees. Certain direct sellers, real estate agents, and companion sitters are, by law, considered nonemployees. They are generally treated as self-employed for employment tax purposes. See Publication 15-A for details.

Treating employees as nonemployees. If you incorrectly treated an employee as a nonemployee and did not withhold social security and Medicare taxes, you will be liable for the taxes. See Internal Revenue Code section 3509 for details.

IRS help. If you want the IRS to determine if a worker is an employee, file Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding.

Farm Crew Leaders

You are an employer of farmworkers if you are a crew leader. A crew leader is a person who furnishes and pays (either on his or her own behalf or on behalf of the farm operator) workers to do farmwork for the farm operator. If there is no written agreement between you and the farm operator stating that you are his or her employee, and if you pay the workers (either for yourself or for the farm operator), then you are a crew leader.

2. Employer Identification Number (EIN)

An employer identification number (EIN) is a nine-digit number that the IRS issues. Its format is 00-0000000. It is used to identify the tax accounts of employers and certain other organizations and entities that have no employees. Use your EIN on all of the items that you send to the IRS and SSA for your business.

If you do not have an EIN, request one on Form SS-4, Application for Employer Identification Number. Form SS-4 contains information on how to apply for an EIN by mail, fax, or telephone. You can also apply online at
http://www.irs.gov/businesses/small/index.html.

If you do not have an EIN by the time a return is due and you are filing a paper return, enter “Applied For” and the date that you applied for it in the space shown for the number. If you took over another employer's business, do not use that employer's EIN.

You should have only one EIN. If you have more than one, write to the IRS office where you file your returns using the “without a payment” address in the Instructions for Form 941-SS, Instructions for Form 944-SS, or Instructions for Form 943. Or call the IRS Business & Specialty Tax Line (toll free) at 1-800-829-4933 (U.S. Virgin Islands only) or 215-516-2000 (toll call). TTY/TDD users in the U.S. Virgin Islands may call 1-800-829-4059 (toll free). The IRS will tell you which EIN to use.

For more information, see Publication 1635, Understanding Your EIN, or Publication 583, Starting a Business and Keeping Records.

3. Employee's Social Security Number (SSN)

An employee's social security number (SSN) consists of nine digits separated as follows: 000-00-0000. You must get each employee's name and SSN and enter them on the employee's wage and tax statement, Form W-2AS, W-2CM, W-2GU, or Form W-2VI. If you do not report the employee's correct name and SSN, you may owe a penalty unless you have reasonable cause. See Publication 1586, Reasonable Cause Regulations and Requirements for Missing and Incorrect Name/TINs for more information.

Employee's social security card. You should ask the employee to show you his or her social security card. The employee may show the card if it is available. You may, but you are not required to, photocopy the social security card if the employee provides it. If an employee does not have a social security card or needs a new one, the employee should apply for one on Form SS-5, Application for a Social Security Card, and submit the necessary documentation. See the back cover of this publication for information on how to get and where to send the form. The employee must complete and sign Form SS-5; it cannot be filed by the employer. If your employee has applied for an SSN but has not received the card before you must file your Form W-2 reports, and you are filing your reports on paper, enter “Applied For” in box d. Enter all zeroes in the SSN block if filing electronically. When the employee receives the SSN, file Form W-2c, Corrected Wage and Tax Statement, with SSA to show the employee's SSN.

Verification of social security numbers. The SSA offers employers and authorized reporting agents several methods for verifying employee SSNs. You can get more information by visiting SSA's Employer Reporting Instructions and Information website at
www.socialsecurity.gov/employer and selecting “Social Security Number Verification.”

Correctly record the employee's name. Record the name and number of each employee as they appear on his or her social security card. If the employee does not have a card, he or she should apply for one by completing Form SS-5, Application for a Social Security Card. If the name is not correct as shown on the card (for example, because of marriage or divorce), the employee should request a corrected card from the SSA. Continue to use the old name until the employee shows you the replacement social security card with the corrected name.

If SSA issues the employee a replacement card after a name change, or a new card with a different social security number after a change in alien work status, file a Form W-2c to correct the name/SSN reported on the most recently filed Form W-2AS, W-2CM, W-2GU, or Form W-2VI. It is not necessary to correct other years if the previous name and SSN were used for years before the most recent Form W-2.

4. Wages and Other Compensation

Generally, all wages are subject to social security and Medicare tax (and FUTA tax for U.S. Virgin Islands employers). However, wages subject to social security tax and FUTA tax are limited by a wage base amount that you pay to each employee for the year. After you pay $102,000 to an employee in 2008, including tips, do not withhold social security tax on any amount that you later pay to the employee for the year. The wage base for FUTA tax is $7,000 for 2008. All wages are subject to Medicare tax. The wages may be in cash or in other forms, such as an automobile for personal use. Wages include salaries, vacation allowances, bonuses, commissions, and fringe benefits. It does not matter how payments are measured or paid.

See the table in section 12 for exceptions to social security, Medicare, and FUTA taxes on wages. See sections 5 and 6 for a discussion of how the rules apply to tips and farmworkers.

Social security and Medicare taxes apply to most payments of sick pay, including payments by third parties such as insurance companies. Special rules apply to the reporting of third-party sick pay. For details, see
Publication 15-A.

Determine the value of noncash pay (such as goods, lodging, and meals) by its fair market value. However, see Fringe Benefits below. Except for farmworkers and household employees, this kind of pay may be subject to social security, Medicare, and FUTA taxes.

Back pay, including retroactive wage increases (but not amounts paid as liquidated damages), is taxed as ordinary wages in the year paid. For information on reporting back pay to the Social Security Administration, see
Publication 957, Reporting Back Pay and Special Wage Payments to the Social Security Administration.

Travel and business expenses. Payments to your employee for travel and other necessary expenses of your business generally are included in taxable wages if
(a) your employee is not required to or does not substantiate timely those expenses to you with receipts or other documentation, or (b) you advance an amount to your employee for business expenses and your employee is not required to or does not return timely any amount that he or she does not use for business expenses.

Sick pay. In general, sick pay is any amount that you pay, under a plan that you take part in, to an employee because of sickness or injury. These amounts are sometimes paid by a third party, such as an insurance company. In either case, these payments are subject to social security, Medicare, and FUTA taxes (U.S. Virgin Islands only). Sick pay becomes exempt from these taxes after the end of 6 calendar months after the calendar month the employee last worked for the employer. Publication 15-A explains the employment tax rules that apply to sick pay, disability benefits, and similar payments to employees.

Fringe Benefits

Generally, fringe benefits are includible in the gross income of an employee and are subject to employment taxes. Examples of fringe benefits include the use of an automobile, aircraft flights that you provide, free or discounted commercial airline flights, vacations, discounts on property or services, memberships in country clubs or other social clubs, and tickets to entertainment or sporting events. In general, the amount included in the employee's income is the excess of the fair market value of the benefit over the sum of any amount paid for it by the employee and any amount excluded by law. For more information, see Publication 15-B, Employer's Tax Guide to Fringe Benefits.

When fringe benefits are treated as paid. You can choose to treat taxable noncash fringe benefits (including personal use of an automobile provided by you) as paid by the pay period, quarter, or on any other basis that you choose, but they must be treated as paid at least annually. You do not have to make a formal choice of payment dates or notify the IRS. You do not have to use the same basis for all employees. You may change methods as often as you like, as long as all benefits provided in a calendar year are treated as paid no later than December 31 of the calendar year. However, see Special accounting rule for fringe benefits provided during November and December below.

You can treat the value of a single taxable noncash fringe benefit as paid on one or more dates in the same calendar year, even if the employee gets the entire benefit at one time. However, once you elect the payment dates, you must report the taxes on your return in the same tax period in which you treated them as paid. This election does not apply to a fringe benefit where real property or investment personal property is transferred.

Withholding social security and Medicare taxes on fringe benefits. You add the value of fringe benefits to regular wages for a payroll period and figure social security and Medicare taxes on the total.

If you withhold less than the required amount of social security and Medicare taxes from the employee in a calendar year but report and pay the proper amount, you may recover the taxes from the employee.

Depositing taxes on fringe benefits. Once you choose payment dates for taxable noncash fringe benefits, you must deposit taxes in the same deposit period that you treat the fringe benefits as paid. You may make a reasonable estimate of the value of the fringe benefits. In general, the value of taxable noncash fringe benefits provided in a calendar year must be determined by January 31 of the following year.

You may claim a refund of overpayments or elect to have any overpayment applied to the next employment tax return. If deposits are underpaid, see Deposit Penalties in section 8.

Valuation of vehicles provided to employees. If you provide a vehicle to your employees, you may either determine the actual value of the benefit for the entire calendar year, taking into account the business use of the vehicle, or consider the entire use for the calendar year as personal and include 100% of the value of the vehicle in the employee's income. For reporting information to employees, see the box 14 instructions under Specific Instructions for Forms W-2AS, W-2GU, and W-2VI in the separate Instructions for Forms W-2AS, W-2GU, W-2VI, and Form W-3SS.

Special accounting rule for fringe benefits provided during November and December. You may choose to treat the value of taxable noncash fringe benefits provided during November and December as paid in the next year. However, this applies only to those benefits that you actually provided during November and December, not to those you merely treated as paid during those months.

If you use this rule, you must notify each affected employee between the time of the employee's last paycheck of the calendar year and at or near the time that you give the employee Form W-2AS, W-2CM, W-2GU, or Form W-2VI. If you use the special accounting rule, your employee must also use it for the same period that you use it. You cannot use this rule for a fringe benefit of real property or tangible or intangible real property of a kind normally held for investment that is transferred to your employee.

5. Tips

Tips that your employee receives are generally subject to social security and Medicare withholding. Your employee must report cash tips to you by the 10th of the month after the month that the tips are received. The report should include tips that you paid to the employee from charge receipts. Also include tips that the employee received directly from customers and other employees, and indirectly (for example, tip splitting). The report should not include tips that the employee paid out to other employees. No report is required for months when tips are less than $20. Your employees report tips on Form 4070, Employee's Report of Tips to Employer, or on a similar statement. They may also use Form 4070A, Employee's Daily Record of Tips, to keep a record of their tips. Both forms are printed in Publication 1244, Employee's Daily Record of Tips and Report to Employer, available from the IRS.

The statement must be signed by the employee and must show the following:

The employee's name, address, and SSN.
Your name and address.
The month or period that the report covers.
The total tips received during the month or period.

Collecting taxes on tips. You must collect the employee social security and Medicare taxes on the employee's tips. You can also collect these taxes from the employee's wages or from other funds that he or she makes available. Stop collecting the employee social security tax when his or her total wages and tips for 2008 reach $102,000. Collect the employee Medicare tax for the whole year on all wages and tips.

You are responsible for the employer social security tax on wages and tips until the wages (including tips) reach the wage base limit. You are responsible for the employer Medicare tax for the whole year on all wages and tips. File Form 941-SS (or Form 944-SS) to report withholding and employer taxes on tips.

Ordering rule. If, by the 10th of the month after the month you received an employee's report on tips, you do not have enough employee funds available to deduct the employee tax, you no longer have to collect it.

Reporting tips. Report tips and any uncollected social security and Medicare taxes in boxes 1, 5, 7, and 12 on Forms W-2AS, W-2CM, W-2GU, or Form W-2VI and on lines 5b, 5c, and 7c of Form 941-SS (lines 4b, 4c, and 6a on Form 944-SS).The table in section 12 shows how tips are treated for FUTA tax purposes.

You are permitted to establish a system for electronic tip reporting by employees. See Regulations section 31.6053-1(d).

6. Social Security and Medicare Taxes for Farmworkers

The tests described below apply only to services that are defined as agricultural labor (farmwork). Farmworkers are your employees if they:

Raise or harvest agricultural or horticultural products on your farm (including the raising and feeding of livestock);
Work in connection with the operation, management, conservation, improvement, or maintenance of your farm and its tools, equipment, or services pertaining to hurricane labor;
Handle, process, or package any agricultural or horticultural commodity if you produced over half of the commodity (for an unincorporated group of up to 20 operators, all of the commodity); or
Do work for you related to cotton ginning, turpentine, gum resin products, or the operation and maintenance of irrigation facilities.

A “share farmer” working for you is not your employee. However, the share farmer may be subject to self-employment tax. In general, share farming is an arrangement in which certain commodity products are shared between the farmer and the owner (or tenant) of the land. For details, see Regulations section 31.3121(b)(16)-1.

The $150 Test or the $2,500 Test

All cash wages that you pay for farmwork are subject to social security and Medicare taxes if either of the following two tests is met.

You pay cash wages to the employee of $150 or more in a year (count all cash wages paid on a time, piecework, or other basis) for farmwork. The $150 test applies separately to each farmworker that you employ. If you employ a family of workers, each member is treated separately. Do not count wages paid by other employers.
The total that you pay for farmwork (cash and noncash) to all of your employees is $2,500 or more during the year.

Exceptions. The $150 and $2,500 tests do not apply to wages that you pay to a farmworker who receives less than $150 in annual cash wages and the wages are not subject to social security and Medicare taxes even if you pay $2,500 or more in that year to all of your farmworkers if the farmworker:

Is employed in agriculture as a hand-harvest laborer,
Is paid piece rates in an operation that is usually paid on a piece-rate basis in the region of employment,
Commutes daily from his or her home to the farm, and
Had been employed in agriculture less than 13 weeks in the preceding calendar year.

Amounts that you pay to these seasonal farmworkers, however, count toward the $2,500-or-more test to determine whether wages that you pay to other farmworkers are subject to social security and Medicare taxes.

7. How To Figure Social Security and Medicare Taxes

For wages paid in 2008, the social security tax rate is 6.2% and the Medicare tax rate is 1.45% for both the employer and the employee. Multiply each wage payment by these percentages to figure the tax to withhold from employees. For example, the social security tax on a wage payment of $355 would be $22.01 ($355 × .062) each. The Medicare tax would be $5.15 ($355 × .0145) each. Employers match these amounts and report both the employee and employer shares on Form 941-SS, 944-SS, or Form 943 (farm employment). See section 5 for information on tips.

Deducting the tax. Deduct the employee tax from each wage payment. If you are not sure that the wages that you pay to a farmworker during the year will be taxable, you may either deduct the tax when you make the payments or wait until the $2,500 test or the $150 test explained in section 6 has been met.

Employee's portion of taxes paid by employer. If you pay your employee's social security and Medicare taxes without deducting them from the employee's pay, you must include the amount of the payments in the employee's wages for social security and Medicare taxes. This increase in the employee's wage payment for your payment of the employee's social security and Medicare taxes is also subject to employee social security and Medicare taxes. This again increases the amount of the additional taxes that you must pay.

Household and agricultural employers. This discussion does not apply to household and agricultural employers. If you pay a household or agricultural employee's social security and Medicare taxes, these payments must be included in the employee's wages. However, this wage increase due to the tax payments is not subject to social security or Medicare taxes as discussed in this section. See Publication 15-A for details.

Sick pay payments. Social security and Medicare taxes apply to most payments of sick pay, including payments made by third parties such as insurance companies. For details on third-party payers of sick pay, see Publication 15-A.

8. Depositing Taxes

You must deposit social security and Medicare taxes if your tax liability (line 8 of Form 941-SS, line 7 of Form 944-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 Form 941-SS, 944-SS, or Form 943 instead of depositing without incurring a penalty if one of the following applies.

You report less than a $2,500 tax liability during the return period (line 8 of Form 941-SS, line 7 of Form 944-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 report less than $2,500, deposit under the rules explained in this section so that you will not be subject to failure-to-deposit penalties.
You are a monthly schedule depositor and make a payment in accordance with the Accuracy of Deposits Rule on page 10. This payment may be $2,500 or more.

Employers who have been instructed to file Form 944-SS can pay their tax liability due for the fourth quarter with Form 944-SS, if their fourth quarter tax liability is less than $2,500. Employers must have deposited any tax liability due for the first, second, and third quarters, according to the deposit rules, in order to avoid failure-to-deposit penalties for deposits due during those quarters.

Only monthly schedule depositors are allowed to make an Accuracy of Deposits Rule payment with the return. Semiweekly schedule depositors must timely deposit the amount. See Accuracy of Deposits Rule and How To Deposit later in this section.

When To Deposit

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 that you must follow when a tax liability arises (for example, 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 8 of Form 941-SS, line 8 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 four quarters beginning July 1 of the second preceding year and ending June 30 of the prior year. These four quarters are your lookback period even if you did not report any taxes for any of the quarters. For 2008, the lookback period is July 1, 2006, through June 30, 2007.

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lookback

The lookback period for Form 944-SS (or Form 944) is the second calendar year preceding the current calendar year. For example, the lookback period for calendar year 2008 is calendar year 2006. In addition, for employers who filed Form 944-SS (or Form 944) for 2007 and will file Form 941-SS (or Form 941) for 2008, the lookback period for 2008 is the second calendar year preceding the current calendar year, that is, 2006.

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 2008 is calendar year 2006.

Adjustments to lookback period taxes. To determine your taxes for the lookback period, use only the tax that you reported on the original returns (Forms 941-SS, Forms 941, or Form 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 Form 943, the adjustments are included in the total tax for the period in which the adjustments are reported.

Example. An employer originally reported total taxes of $45,000 for the lookback period. The employer discovered during February 2008 that the tax during the lookback period was understated by $10,000 and corrected this error with an adjustment on the 2008 first quarter Form 941-SS. The employer is a monthly schedule depositor for 2008 because the lookback period tax liabilities are based on the amounts originally reported, and they were $50,000 or less. The $10,000 adjustment is treated as part of the 2008 first quarter tax liability.

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.

Monthly Deposit Schedule

If your 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 wage payments made during a calendar month by the 15th day of the following month.

New employers. Your tax liability for any quarter in the lookback period before the date you started or acquired your business is 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 on page 10).

Semiweekly Deposit Schedule

If your 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 that you make wage payments, as follows.

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

Semiweekly depositors are generally not required to deposit twice a week if their payments were in the same semiweekly period unless the $100,000 Next Day Deposit Rule on page 10 applies. For example, if you made a payment on both Wednesday and Friday and incurred taxes of $10,000 for each pay date, deposit the $20,000 on the following Wednesday. If you made no additional payments on Saturday through Tuesday, no deposit is due on 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.

Example. If you have a pay date on Saturday, March 29, 2008 (first quarter), and another pay date on Tuesday, April 1, 2008 (second quarter), two separate deposits will be required even though the pay dates fall within the same semiweekly period. Both deposits will be due Friday, April 4, 2008 (three banking days from the end of the semiweekly deposit period).

Examples of Monthly and Semiweekly Schedules

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

2007 Lookback Period
3rd Quarter 2005	$12,000
4th Quarter 2005	12,000
1st Quarter 2006	12,000
2nd Quarter 2006	12,000
	$48,000

2008 Lookback Period
3rd Quarter 2006	$12,000
4th Quarter 2006	12,000
1st Quarter 2007	12,000
2nd Quarter 2007	15,000
	$51,000

Rose Co. is a monthly schedule depositor for 2007 because its taxes for the four quarters in its lookback period ($48,000 for the 3rd quarter of 2005 through the 2nd quarter of 2006) were not more than $50,000. However, for 2008, Rose Co. is a semiweekly schedule depositor because the total taxes for the four quarters in its lookback period ($51,000 for the 3rd quarter of 2006 through the 2nd quarter of 2007) exceeded $50,000.

Employers of farmworkers. Red Co. reported taxes on its 2005 Form 943 (line 9) of $48,000. On its 2006 Form 943 (line 9), it reported taxes of $60,000.

Red Co. is a monthly schedule depositor for 2007 because its taxes for its lookback period ($48,000 for calendar year 2005) were not more than $50,000. However, for 2008, Red Co. is a semiweekly schedule depositor because the total taxes for its lookback period ($60,000 for calendar year 2006) exceeded $50,000.

New agricultural employers. New agricultural employers filing Form 943 are monthly schedule depositors for the first and second calendar years of their business because their taxes for the lookback period (2 years) are considered to be zero. However, see the $100,000 Next-Day Deposit Rule below.

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 1 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 1 banking day 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 2008, 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 (that is, 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 February 29, 2008, (Friday) payday must be deposited by March 5, 2008 (Wednesday).

$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 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.

However, 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. does not have to deposit the $30,000 until Friday (following 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. Elm, Inc. started business on May 1, 2008. 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 12, Elm, Inc. paid wages for the first time and accumulated taxes of $60,000. On May 16 (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 16, it must deposit $110,000 by May 19 (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.

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

Makeup date for deposit shortfall:

Monthly schedule depositor. Deposit or pay the shortfall by the due date of the Form 941-SS, 944-SS, or Form 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:
1. The 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 filing Form 941-SS has a deposit shortfall during July 2008, the shortfall makeup date is August 15, 2008 (Friday). However, if the shortfall occurred on the required October 1 (Wednesday) deposit date for a September 26 (Friday) pay date, the return due date for the September 26 pay date (October 31) would come before the November 19 (Wednesday) shortfall makeup date. In this case, the shortfall must be deposited by October 31.

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 or Form 944-SS taxes). Form 943 taxes and Form 941-SS (or Form 944-SS) taxes are not combined for purposes of applying any of the deposit rules.

If a deposit is due, deposit the Form 941-SS (or Form 944-SS) taxes and Form 943 taxes separately, as discussed below.

How To Deposit

The two methods of depositing employment taxes are discussed next. See Payment with Return on page 8 for exceptions explaining when taxes may be paid with the tax return instead of being 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 2008 if:

Your total deposits of such taxes in 2006 were more than $200,000 or
You were required to use EFTPS in 2007.

If you are required to use EFTPS and fail to do so, you may be subject to a 10% failure-to-deposit penalty. EFTPS is a free service provided by the Department of the Treasury. 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 toll free (U.S. Virgin Islands only) or 303-967-5916 (toll call). You can also visit the EFTPS website at www.eftps.gov.

When you receive your EIN. New employers that have a federal tax obligation will be pre-enrolled in EFTPS. Call the toll-free number located in your Employer Identification Number (EIN) Package to activate your enrollment and begin making your tax deposit payments. Be sure to tell your payroll provider about your EFTPS enrollment. Consider using EFTPS to make your other federal tax payments electronically.

Depositing on time. For deposits made by EFTPS to be on time, you must initiate the transaction at least 1 business day before the date that the deposit is due.

Deposit record. For your records, an Electronic Funds Transfer (EFT) Trace Number will be provided with each successful payment. The number can be used as a receipt or to trace the payment.

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, if you would like to receive a Federal Tax Deposit (FTD) coupon booklet, call 1-800-829-4933 toll free (U.S. Virgin Islands only), or 215-516-2000 (toll call). Allow 5 to 6 weeks for delivery. You should consider enrolling in EFTPS (see When you receive your EIN earlier) now because you may be required to make deposits before your FTD coupons arrive. The IRS will keep track of the number of FTD coupons that you use and automatically will send you additional coupons when you need them. If you do not receive your resupply of FTD coupons, call 1-800-829-4933 (U.S. Virgin Islands only), or 215-516-2000 (toll call). 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 spaces 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 that 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 a 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 on page 12 for amounts.

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 (for example, a commercial bank) that is authorized to accept federal tax deposits. Follow the instructions in the FTD coupon book. Make your check or money order payable to the depositary. To help ensure proper crediting of your account, include your EIN, the type of tax (for example, Form 941-SS), and the 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 that 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. 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) in a properly addressed, postage prepaid envelope 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's daily cutoff deadline.

If you are required to deposit any taxes more than once a month, any deposit of $20,000 or more must be received by the authorized depositary by its due date to be timely. See section 7502(e)(3) for more information.

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 the date that you applied for an EIN. Send your deposit with an explanation to your local IRS office or the IRS service center where you will file Form 941-SS, Form 944-SS, Form 943, or Form 940. The service center addresses are provided in the separate instructions for Forms 941-SS, Form 944-SS, 943, and 940 and are also available on the IRS website at www.irs.gov. Do not use Form 8109-B, Federal Tax Deposit Coupon, in this situation.

Depositing without Form 8109. If you do not have a 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 1-800-829-4933 (U.S. Virgin Islands only), or 215-516-2000 (toll call). Be sure to have your EIN ready when you call. You will not be able to obtain Form 8109-B 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 preprinted 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 tax period, you can choose on Form 941-SS, Form 941, Form 944-SS, Form 944, or Form 943 for that tax period 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, if you make deposits of 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. IRS may also waive penalties if you inadvertently fail to deposit in the first quarter that a deposit is due, or the first quarter during which your frequency of deposits changed, if you timely filed your employment tax return.

For amounts not properly or timely deposited, the penalty rates are as follows.

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 that 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 above and Payment with Return on page 8 for exceptions).
10%	-	Amounts subject to electronic deposit requirements but not deposited using EFTPS.