Payroll in Practice: 7.7.2025

Question: An employer is subject to the $100,000 next day rule for regular paydays. How does this work for manual or off-cycle wage payments?

Answer: The answer depends on when the manual payment is issued to the employee and the amount of the payment.

Employers deposit payroll taxes on either a monthly or semiweekly basis. The deposit schedule assigned to an employer is based on the total tax liability that the employer reported during a lookback period as described in IRS Notice 931, Deposit Requirements for Employment Taxes, and IRS Publication 15, Circular E, Employer’s Tax Guide.

If the total tax reported during the lookback period was $50,000 or less, the employer is a monthly schedule depositor. For new employers, the tax liability for any quarter in the lookback period before the business started or was acquired is deemed to be zero. A monthly schedule depositor is to deposit accumulated taxes on payments made during a calendar month by the 15th day of the following month.

If the reported tax liability was more than $50,000, the employer is a semiweekly schedule depositor, making deposits twice each week. For payments made on Wednesday, Thursday, or Friday, the deposit is due the following Wednesday. For payments made on Saturday, Sunday, Monday, or Tuesday, the deposit is due the following Friday.

The $100,000 next-day deposit rule applies when an employer accumulates a payroll tax liability of $100,000 or more on any day during a deposit period. When this occurs, the accumulated tax must be deposited by the next business day, regardless of the employer’s regular deposit schedule. However, the tax accumulation stops at the end of that day and a new accumulation starts the next day.

For example, a semiweekly schedule employer accumulates $115,000 in tax liability on Tuesday and $10,000 on Wednesday. The $115,000 must be deposited Wednesday, but the $10,000 is not added to the previous $115,000. Instead, the $10,000 starts a new accumulation. Under the semiweekly deposit schedule, the $10,000 liability would not be due until the following Wednesday unless the new accumulation reaches $100,000 before that date.

There is an additional consequence for an employer on a monthly deposit schedule. Once a monthly schedule depositor accumulates a $100,000 tax liability on any day during a deposit period, it automatically becomes a semiweekly schedule depositor and remains so for at least the rest of the calendar year and for the following calendar year.

If an off-cycle payment is issued before the end of a day on which the $100,000 rule applies, the related taxes are included in the accumulated liability for that day and must be deposited the next business day. If the amount was not known in time to include in the electronic deposit, the employer might include an estimated amount when scheduling the deposit. For example, if the known next day deposit is $115,000, the employer could schedule the electronic payment to include an additional estimated amount to cover payments that are issued too late to include the actual amount of the deposit due.

Any additional amount that is greater than the actual liability can be applied to the next deposit. If less than the actual liability, the additional amount makes it more likely the accuracy-of-deposits rule would apply. Under this rule, a deposit shortfall that does not exceed the greater of $100 or 2% of the required deposit is not subject to underpayment penalties as long as the shortfall amount is paid by the shortfall makeup date. For perspective, 2% of $100,000 is $2,000.

The shortfall makeup date for a semiweekly depositor is the first Wednesday or Friday, whichever comes first, on or after the 15th of the month following the month the shortfall occurred. If the due date of the return for the period of the tax liability is earlier, then that is the makeup date.

The shortfall makeup date for monthly depositors is always the due date of the return for the period in which the shortfall occurred.

If the accuracy-of-deposits rule applies, including the taxes for the off-cycle payments, the shortfall may be deposited with a regular semiweekly deposit as long as it is before the shortfall makeup date. The accuracy of deposits rule does not apply to any off-cycle payments issued after the day that triggered the 100,000 next-day rule, since they were not part of that accumulated liability.

If there is time, the employer could schedule an additional deposit or arrange for a same-day wire payment instead of paying an estimated amount. Same-day wire payments are made through the employer’s financial institution. It is best to know what the financial institution requires to make a same-day wire payment before the need to use the service arises.

This column does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., or its owners.

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

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