Payroll taxes come out of employee paychecks and are sent to the IRS and your state on a schedule you set

When you run a business with employees, you withhold federal income tax, Social Security tax, and Medicare tax from each paycheck. You also pay your own share of Social Security and Medicare as the employer. These withheld amounts plus your employer share must be deposited with the IRS — not when you file taxes, but on a regular schedule throughout the year. The schedule depends on how much you owe and which deposit method you use.

The IRS does not send you a bill. You calculate what you owe based on your payroll, then deposit it yourself using either the Electronic Federal Tax Payment System (EFTPS) or through your tax software or payroll provider. Deposits are due on specific dates — usually monthly or twice per month — and missing a deposit date costs you a penalty even if you pay the full amount later.

Key Takeaways

  • You must deposit withheld taxes and employer payroll taxes on a schedule set by the IRS, not when you file your annual return.
  • Most small businesses deposit monthly, but if you owe $100,000 or more in a single payroll period, you must deposit within one business day.
  • EFTPS is the IRS's free system for deposits, but payroll software and your bank can also handle deposits on your behalf.
  • Deposits go to a Treasury account, not directly to the IRS, and the IRS matches them to your business using your EIN.
  • Penalties for late or missed deposits start at 2 percent of the amount owed and increase based on how late the payment is.

Understanding the two deposit schedules: monthly and semi-weekly

The IRS assigns you to one of two deposit schedules based on how much payroll tax you owed in the past four quarters. This is called your lookback period. If you owed $50,000 or less during the lookback period, you are on the monthly schedule. If you owed more than $50,000, you are on the semi-weekly schedule.

On the monthly schedule, you deposit all taxes withheld during a calendar month by the 15th of the following month. For example, taxes withheld in January are due by February 15. On the semi-weekly schedule, the due date depends on which day of the week you paid employees. If you paid them on Wednesday, Thursday, or Friday, taxes are due the following Wednesday. If you paid them on Saturday, Sunday, Monday, or Tuesday, taxes are due the following Friday.

The IRS reviews your lookback period every January and can move you to a different schedule. If your business grows and you cross the $50,000 threshold, you will move to semi-weekly deposits starting the next quarter. If your payroll shrinks, you may move back to monthly.

How to deposit: EFTPS, payroll software, and bank transfers

The IRS's official system is EFTPS (Electronic Federal Tax Payment System). It is free, available 24 hours a day, and you can schedule deposits up to 120 days in advance. To use EFTPS, you enroll online at eftps.gov, receive a PIN in the mail, and then log in to schedule payments. You enter your EIN, the tax period, the amount, and the due date, and the system deducts the money from your bank account on the date you choose.

Many small business owners use their payroll software instead — Guidepoint, ADP, Paychex, and others can deposit taxes directly to the IRS on your behalf. The software calculates what you owe based on the paychecks you process, and you authorize the deposit with a click. This is often easier than EFTPS because you do not have to calculate the amount yourself, but you may pay a small fee.

Some banks also offer payroll tax deposit services. You can authorize your bank to send the payment to the IRS using your account information. This works similarly to EFTPS but through your existing banking relationship. Whichever method you choose, the money must leave your account by the due date — deposits made after the due date are considered late even if they arrive at the IRS the next day.

What happens if you owe $100,000 or more in a single payroll period

If the total tax liability from a single payroll period reaches $100,000 or more, you must deposit that amount by the next business day. This rule overrides the monthly or semi-weekly schedule and applies regardless of your lookback period. For example, if you run a large payroll on a Friday and the withholding plus employer tax totals $100,000, you must deposit by Monday.

This rule exists because the IRS wants large amounts in the Treasury quickly. Most small businesses never hit this threshold, but seasonal businesses or those with irregular payroll patterns should watch for it. If you know a large payroll is coming, plan the deposit in advance — do not wait until the last hour of the business day.

Penalties for late or missed deposits

The IRS charges a penalty for deposits that arrive after the due date. The penalty is a percentage of the unpaid amount and depends on how many days late the deposit is. If you are 1 to 5 days late, the penalty is 2 percent. If you are 6 to 15 days late, it is 5 percent. If you are 16 or more days late, it is 10 percent. If the IRS has to contact you about the missed deposit, the penalty can reach 15 percent.

These penalties explore even if you eventually pay the full amount. The IRS does not waive them because you made an honest mistake or because the money was tight that month. The only way to avoid the penalty is to deposit on time. If you miss a important date, deposit as soon as possible and then contact the IRS to explain — some penalties can be reduced if you have a history of on-time deposits and can show the late payment was due to circumstances beyond your control, but this is not may provide.

Reconciling deposits with your annual tax return

Throughout the year, you deposit payroll taxes based on your payroll records. At the end of the year, you file Form 941 (Employer's Quarterly Federal Tax Return) for each quarter, which reports the total wages paid, taxes withheld, and employer taxes owed. The IRS matches your deposits to your Form 941 using your EIN and the tax period.

If your deposits add up to more than you owe on Form 941, you receive a refund or can request a credit toward next year's taxes. If your deposits are less than what you owe, you pay the difference when you file. This is why accurate payroll records matter — if you cannot account for your deposits, the IRS will assess additional tax and penalties.

State payroll taxes work similarly. Most states require monthly or quarterly deposits, and you reconcile them on your state tax return. The due dates and deposit methods vary by state, so check your state's revenue or labor department website for the specific schedule.

Setting up a payroll tax account and staying on track

When you first hire an employee, you need an EIN (Employer Identification Number) from the IRS. You can get one free at irs.gov or by calling 1-800-829-4933. Once you have an EIN, you can enroll in EFTPS or set up deposits through your payroll software.

The best way to stay on track is to use payroll software that calculates and tracks deposits for you. The software tells you how much to deposit and when, reducing the chance of a missed important date. If you handle payroll manually, create a calendar with all deposit due dates for the year and set reminders a few days before each one. Keep copies of all deposit confirmations — EFTPS sends a confirmation number, and your bank or software provides a receipt. These records protect you if there is ever a dispute about whether a deposit was made.

Frequently Asked Questions

What if I deposit early — does that hurt me?

No. Depositing early is always safe. The IRS credits early deposits to the correct tax period, and you avoid the risk of a late penalty. Many business owners deposit a few days before the due date for this reason.

Can I deposit payroll taxes monthly if I am on the semi-weekly schedule?

No. You must follow the schedule the IRS assigns you. If you are on semi-weekly, deposits are due twice per week based on your payroll dates. Depositing monthly when you should deposit semi-weekly will result in late penalties.

What if my payroll software deposits the wrong amount?

Contact your payroll provider when ready and ask them to file a corrected deposit. You are responsible for the accuracy of the deposit, so do not assume the software is always correct — spot-check the amount against your payroll records. If the IRS assesses a penalty, you may be able to dispute it if you can show the error was the software's fault, but this requires documentation.

Do I deposit federal and state taxes together?

No. Federal payroll taxes go to the IRS through EFTPS or your bank. State payroll taxes go to your state revenue or labor department using that state's system. The due dates and amounts are separate, so you need to track both.

What happens if my business closes mid-year?

You still owe payroll taxes for the paychecks you issued up to the closing date. Deposit any remaining withheld taxes and file a final Form 941 for the quarter in which you closed. Mark it as a final return so the IRS knows not to expect future filings.