Payroll depositor schedule

[BulldogTom]

Client has small trucking company. 3rd year in business. Always pays her taxes with the 941. Had one quarter where taxes exceeded 2,500. IRS sent a penalty notice for failure to make deposits. She called the IRS and they abated the penalty. Now she thinks she is going to exceed 2,500 for the first quarter of 09. She does not like the idea of becoming a monthly depositor.

In looking at the rules, it seems to me that everyone is a monthly depositor unless they are required to deposit sooner. The 2,500 per quarter is an exception only. Am I reading this correctly? If she actually exceeds the 2,500 limit in Q1 of 09, even if she makes the deposit for Jan and Feb by March 16th, she will still get a penalty for failure to deposit on time? Correct?

I don't prepare her payroll, just her 1040.

Tom

Lodi, CA

[JohnH]

Tom:

Yes, you are reading it correctly. Everyone is a monthly depositor except those who have been notified that they must deposit more frequently based on the "lookback" period. The $2,500 per quarter exception is an out if the employer meets that test, but they have to track whether they are likely to exceed it by the end of the quarter - if they do go over then the penalty applies retroactively.

If your client uses payroll software, then it will give her the correct tax deposit amount each month. She just needs to follow through and make the deposit. It's a nuisance, but it's either that or deal with the penalty monster.

If she is doing payrolls manually, she can run an estimate of the FTD each month and deposit that amount. In this case I recommend that they round up by $50-$100 or more each month and then adjust the third FTD to the actual remaining amount due in the final month when they prepare the 941. There's no penalty for over-depositing and the cushion helps keep them out of penalty territory.

[BulldogTom]

Thanks John.

Tom

Lodi, CA