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Making estimated payments
When you make tax payments to the IRS, you submit payroll taxes and non-payroll taxes.
Your payroll taxes include Social Security (FICA) and unemployment (FUTA) taxes. Your non-payroll taxes are made up mostly of income taxes you withhold from employee pay.
Non-payroll taxes also include taxes withheld on pensions, annuities, military retirement, gambling winnings, and any backup withholdings.
To report your payroll taxes, the IRS requires that you file
IRS Form 941 every three months. You file this form on a calendar-quarter basis by the end of the month following the quarter (e.g., April 30 for the January-to-March quarter). The IRS allows you to file Form 941 electronically using its e-file program. Note that if you have an estimated annual employment tax liability of $1,000 or less, you may be able to file Form 944 annually beginning in 2007.
For unemployment taxes, you make a deposit if you owe more than $100 in a quarter. You report your unemployment taxes for a calendar year by the following Jan. 31, using IRS Form 940 or 940EZ. The IRS allows you to file these forms electronically with e-file.
For non-payroll taxes, you file IRS Form 945 by Jan. 31 for the calendar year just ended. The IRS requires that you report payroll and non-payroll taxes separately, using these separate tax forms.
You make payroll and non-payroll tax payments to the IRS on either a monthly or semi-weekly deposit schedule. To determine which schedule to use, check the amount of total tax you reported on Form 941 during the relevant lookback period, which for tax year 2007 is the twelve month period that ends on June 30, 2006.
If you reported $50,000 or less in total taxes during the lookback period, you must use the monthly deposit schedule. If your tax liability was more than $50,000, you must use the semi-weekly deposit schedule.
As a small business, you may find your tax payments are small enough to allow you to postpone some of your tax payments. To qualify, either of the following circumstances must apply:
- You accumulate less than $2,500 in total tax liability in a quarter (less any advances that you make to employees for the earned income credit). You may make payments when you file your Form 941 instead of paying on your monthly or semi-weekly deposit schedule.
If you estimate that your total tax liability will be $2,500 or more during a calendar quarter, or are unsure of your tax liability, the IRS recommends that you pay the full amount of taxes on schedule to avoid the risk of owing a late penalty.
- You make tax payments on the monthly deposit schedule (depositors who use a semi-weekly schedule are excluded) and satisfy the IRS's accuracy-of-deposits rule. If you meet these circumstances, the IRS allows you to postpone paying the unpaid portion until you file Form 941 for the current calendar quarter.
To satisfy the accuracy-of-deposits rule as a monthly depositor, the amount of tax liability you do not pay on schedule must not exceed the greater amount of $100 or 2% of the amount that you are required to deposit under the schedule. For example, if your tax liability under the schedule is $6,000, you could postpone paying $120, or 2% of $6,000, until you file Form 941.
If you can't use the accuracy-of-deposits rule as monthly depositor, you begin to incur penalties on the unpaid amounts. Late-payment penalties escalate to 10% of the unpaid amount after 15 days.
You must deposit your taxes at a financial institution that is authorized by the IRS to accept payments. You may be required to use EFTPS, the IRS's electronic-payments service.
Instead of using EFTPS, you may be able to use the "manual" method of paying at an authorized financial institution with Federal Tax Deposit (FTD) coupons.
Next Topic: Handling other deductions
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