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Payroll in Practice: 12.27.2021

Dec. 27, 2021, 1:30 PM

Question: While reconciling the third-quarter Form 941 with the payroll bank account and accounting records, a company discovered that employee withholding and employer taxes from a bonus paid during the first bimonthly pay period of the third quarter were omitted from the deposit for the pay period. The pay period deposit had already been set up when company management decided to pay the bonus, and the deposit was not updated to include the taxes on the bonus. The employee taxes were withheld, but not included in the deposit. Is it best to make a separate deposit or can the employer include payment with Form 941?

Answer: Payment with Form 941, Employer’s Quarterly Tax Return, is allowable under limited circumstances, but since the company already uses the Electronic Federal Tax Payment System, it is probably safer to deposit the taxes using EFTPS as soon as possible. The EFTPS deposit provides confirmation that the payment was received. Sending payments with Form 941 presents additional risks such as delayed mail delivery and loss or misapplication of the check by the IRS.

Generally, employers are required to deposit taxes rather than send payment with Form 941 or similar forms. There is an exception if the total liability for the reporting period is less than $2,500 for the entire quarter for Form 941, or for the year for Form 944, Employer’s Annual Federal Tax Return. If the employer is required but does not deposit taxes, the employer may be penalized for failing to make electronic deposits or failing to deposit by the monthly or semiweekly due dates.

There is a special rule that permits payment with Form 941, even if not otherwise allowed, called the accuracy-of-deposits rule. When the rule applies to a monthly-schedule depositor, a payment may be sent with Form 941 without penalty even if the amount due exceeds $2,500.

The accuracy of deposits rule applies if the amount of shortfall in the deposit for the date the deposit was due does not exceed the greater of $100 or 2% of the amount required to be deposited on that date. In addition, the shortfall must be deposited by the shortfall due date. In the case of a monthly schedule depositor, the short fall may be paid instead of deposited by the shortfall due date.

The shortfall due date for a monthly schedule depositor is the due date of the return for the period in which the shortfall occurred. For example, the due date for a shortfall that occurred in the third quarter is Oct. 31 (Nov. 1 for 2021) which is the due date of the third quarter Form 941. Note that the 10-day extension to file Form 941 would not apply to the shortfall due date because it requires that all taxes be deposited on or before the regular due date.

For a semiweekly depositor, the shortfall due date is the first Wednesday or Friday, whichever comes first, that falls on or after the 15th of the month following the month in which the shortfall occurred or, if earlier, the due date of the return for the return period of the liability.

For example, if the company is a semiweekly depositor, the due date for a July 2021 shortfall is Wednesday August 18. Had the shortfall occurred on the Oct. 6 (Wednesday) due date for a Sept. 30 (Thursday) payday, the shortfall due date would be Nov. 1 (Monday), the return due date, since that is earlier than the first Wednesday or Friday falling after Nov. 15.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc., or its owners.

Author Information

Patrick Haggerty is the owner of a tax practice in Chapel Hill, N.C., and an enrolled agent licensed to practice before the Internal Revenue Service. The author may be contacted at phaggerty@prodigy.net.

Do you have a question for Payroll in Practice? Send it to phaggerty@prodigy.net.

To contact the editor on this story: William Dunn at wdunn@bloombergindustry.com

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