Federal Tax Deposit

What is the Federal Tax Deposit?

Every employer’s responsibility is to withhold required taxes from employees’ wages, and there is a minimum amount of federal payroll taxes that employees must meet. The precise number is specified by the Federal Insurance Contributions Act (FICA). 

The taxes withheld are deposited to the Internal Revenue Service (IRS) according to their requirements. Those deposits are Federal Tax Deposits, and the federal tax obligations include federal income, unemployment, social security, and medicare taxes as specified by FICA.

All workers, whether seasonal, part-time, or full-time, are subject to federal income tax, and Federal Tax is a tax paid to the national government rather than a state government.

Employers also have a federal tax deposit obligation, and this refers to the payroll tax liability that is also reported to the IRS.

How to utilize Federal Tax Deposit

Payments are due either annually, quarterly, monthly, or semi-weekly. Deposit due dates differ for a small business compared to a large corporation, with smaller businesses paying on a less frequent basis.

Federal Tax Deposits are generally made through electronic funds transfer (EFTPS) using the online Electronic Federal Tax Payment System on the IRS website.

Deposits can also be made in the following manner:

• Companies can set up an automated payment process with ACH credit payments.
• Through a payroll service provider on behalf of the company.
• Through same-day wire payments with a bank.

The IRS notifies companies of their due dates every year by the end of the year, so companies have time to prepare. The best strategy is to work with an accountant and with your payroll service provider to stay on top of the details. A common schedule is for the tax deposits to be due monthly by the 15th.

Failure to make timely deposits will result in paying penalties of up to 15% of the unpaid tax. Penalties also apply if the amount deposited is less than the amount due, and if payment is made directly to the IRS instead of depositing the amount.

Conclusion

Withholding taxes from employee wages while filing tax returns is a key function of any payroll and accounting service. Having a full understanding of the rules around taxes is absolutely essential for employers. It’s a major responsibility to manage employees and follow the requirements of withholding taxes from their wages. Any task that’s related to an employee’s compensation should be handled with care and acted upon quickly.