For the last 3 years, our quarterly 941 deposit has been less than
$2,500, so we mail a check in with the 941 form. 4th quarter 2003 our
quarterly deposit was $2,624 we mailed the check in & received a $262
penalty.

IRS clearly states that you can pay up to $2,500 with your 941, they
also state that you use the look back period to determine if you are a
monthly or semi-monthly payor. IRS does not talk about the lookback
period in regards to being a quarterly payor.

Questions:
1. If we would have deposited the payment at our bank, would we have
avoided the penalty?

2. By what date would the deposit need to be made to avoid penalties.

Please cite official IRS documentation for my records.

Thanks.

Hi Schmerold ~

There are two pertinent documents regarding your payroll tax deposits, 

1. Instructions for Form 941 (Rev. January 2004)
   - http://www.irs.gov/pub/irs-pdf/i941.pdf

2. Circular E, Employer's Tax Guide (Publ 15) (Rev. January 2004)
   - http://www.irs.gov/pub/irs-pdf/p15.pdf


Although both have been revised in January, the deposit rules have not
changed (see Circular E's Changes to Note on page 1)


You are right in that by the terms of the Lookback Period you are a
monthly depositor, and equally correct that you can send in a payment
if the amount is under $2500 (any amount up to $2499).

See page 2 of Instructions for Form 941, "Depositing Taxes",

     "If your net taxes (line 13) are $2,500 or more for the
      quarter, you must deposit your tax liabilities at an
      authorized financial institution with Form 8109, Federal
      Tax Deposit Coupon, or by using the Electronic Federal
      Tax Payment System (EFTPS). You may pay the taxes with
      Form 941 instead of depositing if your total taxes for
      the quarter (line 13) are less than $2,500 and you pay
      in full with a timely filed return."


Because the amount was over $2,500 and you mailed it with the return
amounts to a late deposit, in any case, and if the form was not mailed
at least two days before its due date, the return would be considered
filed late as well.

This means that

1. The taxes should have been deposited by January 31 (which is
   a Sunday, so by February 2nd. (See "When To File, page 1);

2. Or if the amount was under $2,500 in order to qualify for mailing,
   would need to have been mailed two days prior to that, or by
   Friday, January 30th.


The information about paying on time can be found in Circular # on
Page 28 under "Depositing On Time",

     "The IRS determines whether deposits are on time by the
      date that they are received by an authorized depository.
      To be considered timely, the funds must be available to
      the depository on the due date before the institution's
      daily cutoff deadline ... However, a deposit received by
      the authorized depository after the due date will be
      considered timely if the taxpayer establishes that it
      was mailed in the United States at least two days before
      the due date."

Information regarding penalties can be found in the Instructions for
Form 941 on page 2 under "Penalties and Interest",

     "There are penalties for filing a return late and paying
      or depositing taxes late ... (b) deposit taxes when 
      required"


Page 22 of Circular E also has information regarding penalties and the
amount assessed (from 2-15%) under "Deposit Penalties".

     "Penalties may apply if you do not make required deposits
      on time, if you make deposits for less than the required
      amount, or if you do not use EFTPS when required. The
      penalties do not apply if any failure to make a proper
      and timely deposit was due to reasonable cause and not
      to willful neglect. For amounts not properly or timely
      deposited, the penalty rates are:

       2% - Deposits made 1 to 5 days late.
       5% - Deposits made 6 to 15 days late.
      10% - Deposits made 16 or more days late. Also applies
            to amounts paid within 10 days of the date of the
            first notice the IRS sent asking for the tax due.
      10% - Deposits made at an unauthorized financial
            institution, paid directly to the IRS, or paid with
            your tax return (but see Depositing without an EIN
            on page 21 and Payment with return on page 18 for
            exceptions).
      10% - Amounts subject to electronic deposit requirements
            but not deposited using EFTPS..."

Had the deposit been made either electronically or using the coupon
(Form 8109, Federal Tax Deposit Coupon) in a financial institution by
the cutoff time on February 2nd, no penalty would have been assessed.
By sending in the check in an amount over $2,500 with your return, you
incurred the penalties.

You can download Form 941 Instruction in PDF format here,
   - http://www.irs.gov/pub/irs-pdf/i941.pdf

and Circular E (Publ 15), here,
   - http://www.irs.gov/pub/irs-pdf/p15.pdf


If your tax liability is going to over $2,500, now would be a good
time to arrange for deposit via the coupon or electronic transfer on a
regular basis in order to avoid penalties again.


Search Terms ~
   * employer's tax deposits


By the way, it never hurts to ask if they will waive the penalty,
explaining that hitherto your tax liability had never exceeded $2,500.
Who knows, you might find a kindly IRS representative who is willing
to do that. And what's the worst that can happen? They'll say no.

Best of luck,

Serenata
Google Answers Researcher

Serenata,
Thank you for a helpful & complete response. I've decided to sign up
with Paycyle to avoid this issue in future.

John

Thank you for the rating, John.

And actually, the savings in time and energy taking care of this
yourself will be more than worth whatever the costs is ... and then if
they do it wrong, they have to pay any penalties.

Warm regards,

Serenata