The monthly and semiweekly deposit schedule is used to describe the due dates for depositing employment tax liabilities with the IRS. Simply put, when you withhold FICA and employee income taxes from your payroll checks, you need to deposit these funds with the IRS in a timely fashion. The different deposit schedules let you know the dates for these deposits (below), as well as the penalties for failure to deposit.
As an employer or business accountant responsible for calculating, withholding, and depositing payroll tax liabilities, it’s essential that you have the correct employer classification and deposit schedule. Otherwise, you’re all but sure to incur unnecessary accounting expenses or, worse, 941 late payment penalties for failure to deposit in a timely manner.
Basic Concepts Behind Monthly vs. Semiweekly Scheduling
An employer’s status may change from one filing year to the next. Likewise, independent accounting professionals may serve business clients in both scheduling categories. As such, it doesn’t hurt to review the basic concepts behind these labels, so you have a better working knowledge of these designations. Don’t be fooled into thinking, for example, that these deposit schedules have anything to do with whether the employer uses a weekly, bimonthly, or monthly pay schedule. Rather, a monthly deposit schedule is used to refer to employers with more modest employment tax liabilities for which the IRS deems monthly deposits sufficient. It also helps reduce the bookkeeping requirements of new and small businesses.
With larger payroll sums, the IRS wants these funds available sooner rather than later. If you issue payroll checks that incur employment taxes, these withholding funds must be deposited in 3-7 days, depending on the applicable schedule. Assuming they’re “business days,” these deposit deadlines fall on Wednesdays and Fridays. This explains the “semiweekly” scheduling term.
The $100,000 Next-Day Deposit Rule
This basic understanding of the terminology between monthly and semiweekly deposit schedules can also help you understand why the IRS instituted something called the “$100,000 Next-Day Deposit Rule.” In simple terms, if an employer makes payroll payments that result in $100,000 in employment tax liability within a single deposit period, these funds must be deposited on the next business day. If you think this rule may apply to your business, we strongly recommend you review the entire rule in Section 11 of Publication 15. Note, too, that if this rule applies, the employer immediately becomes a semiweekly schedule depositor and remains so for the rest of that year as well as the following calendar year.
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How to Use the Lookback Period to Determine an Employer’s Deposit Schedule
So, how do you know whether an employer is a monthly or semiweekly schedule depositor? Under most normal business situations, you use the Lookback Period. The IRS tries to make a determination as to whether it’s reasonable to expect an employer to comply with the more frequent deposit schedule based on their business and employment tax history. Moreover, this Lookback Period is designed to give employers some heads-up that a change is coming.
Here’s how it works: If the employer has more than $50,000 of employment tax liability during the Lookback Period, the employer is a semiweekly schedule depositor. With $50,000 or less of tax liability, the employer is a monthly schedule depositor. Again, you can find the complete rules in Section 11 of Publication 15, but for 941 Filers with quarterly payroll tax records, the 2017 Lookback Period is July 1, 2015—June 30, 2016.
- Note: Converting to a quarterly Form 941 Filer from an annual Form 944 Filer? Use the earlier of the two calendar years when available. In other words, the Lookback Period for 2017 filers defaults to the Jan-Dec 2015 calendar year when the quarterly numbers aren’t applicable.
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What is the Monthly and Semiweekly Deposit Schedule?
Once you’ve determined which schedule depositor rules apply to your employer business, you’ll naturally want to know what the deposit deadlines are:
- The Monthly Deposit Schedule: The 15th of every month for which employment tax liabilities were accrued. In other words, you need to calculate and deposit all the applicable tax liability for January by February 15th. In the event of a business holiday, the due date is typically forwarded to the next business day.
- The Semiweekly Deposit Schedule: For payments made on a Wednesday, Thursday, or Friday, the tax deposit is due on the following Wednesday. For payments made on a Saturday, Sunday, Monday, or Tuesday, the tax deposit is due on the following Friday. In the event of a business holiday, the due date is typically forwarded to the next business day.
Payroll Software and Form 941 Support from AMS
No matter what type of deposit schedule your business is on, you’re going to want versatile and reliable software support. AMS Payroll includes a powerful suite of features that includes Form 941 and e-file support, among other federal and state-based payroll filings. Our software makes it easy to set up payer and payee account information. Moving forward, it also includes automatic payroll calculations, multiple paycheck options, and easy data transfers to your quarterly and end-of-year filing forms. Our modular products and pricing delivers better solutions at better prices for our employers.