IRS Publication 931: Deposit Requirements for Employment Taxes

What Is IRS Notice 931: Deposit Requirements for Employment Taxes?

IRS Publication 931: Deposit Requirements For Employment Taxes is a document published by the Internal Revenue Service (IRS) that instructs employers on how to deposit withheld Social Security, Medicare, and income taxes for their employees. The deposit instructions in IRS Publication 931 do not cover federal unemployment tax.

Understanding IRS Notice 931: Deposit Requirements for Employment Taxes

IRS Notice 931 is not a tax form but provides instructions for employers to complete IRS Form 941, which accompanies withholding deposits. Employer withholding of employment tax liabilities remains a bedrock principle of tax codes around the world since any system that relied on employees to make their own tax payments would inevitably result in missed payments and expensive collection efforts by the government.

Engaging employers in the tax withholding process allows governments to receive at least a rough estimate of the tax revenue due from income at the end of that year. In the U.S., at the end of the calendar year employees receive IRS Form W-2, which details the withholding amounts paid on their income to federal, state, and local tax authorities. After filing a tax return, the taxpayer could owe more or less than what has been withheld; the amount is reconciled with either a refund to the taxpayer or a bill for taxes owed.

Deposit Schedules for Notice 931

Notice 931 explains that employers must use one of the two employment tax deposit schedules: semi-weekly or monthly. The deposit schedule selected is based on the amount of tax liability reported during a lookback period, which is four calendar-year quarters beginning on July 1 of the year preceding the previous year. For example, the lookback period for withholding taxes to be collected in 2022 begins on July 1, 2021, and ends on June 30, 2022.

Employers use the monthly deposit schedule if their total tax liability in the lookback period was $50,000 or less. Payment is due on the 15^th day of the month after the month in which the paychecks were issued. Employers use the semi-monthly schedule if their total tax liability was over $50,000. In that case, payments are due on the Wednesday following payroll days falling on Wednesday, Thursday, or Friday; or on the Friday following payroll days falling on Sunday, Saturday, Monday, or Tuesday.

For a new employer, the income for the lookback year is considered zero, thus new companies automatically fall under the monthly payment schedule for the first year, so long as their tax liability in any month is under $100,000.

The $100,000 Rule

The so-called $100,000 Rule in Notice 931 says that if any employer deposits $100,000 or more in tax withholding for any payroll period, the IRS payment is due on the next business day. Moreover, at that point, the employer must immediately switch to the semi-weekly payment plan for the rest of the year and the following calendar year.