IRS Publication 15 — Employer's Tax Guide (Circular E)

Although the deposit penalties information provided next refers specifically to Form 941, these rules also apply to Form 943, Form 944, and Form 945. The penalties won’t apply if the employer qualifies for the exceptions to the deposit requirements discussed under Payment with return , earlier, in this section.

Penalties may apply if you don’t make required deposits on time or if you make deposits for less than the required amount. The penalties don’t apply if any failure to make a proper and timely deposit was due to reasonable cause and not to willful neglect. If you receive a penalty notice, you can provide an explanation of why you believe reasonable cause exists. If you timely filed your employment tax return, the IRS may also waive deposit penalties if you inadvertently failed to deposit and it was the first quarter that you were required to deposit any employment tax, or if you inadvertently failed to deposit the first time after your deposit frequency changed. You must also meet the net worth and size limitations applicable to awards of administrative and litigation costs under section 7430; for individuals, this means that your net worth can’t exceed $2 million, and for businesses, your net worth can’t exceed $7 million and you also can’t have more than 500 employees. The IRS may also waive the deposit penalty the first time you’re required to make a deposit if you inadvertently send the payment to the IRS rather than deposit it by EFT . For amounts not properly or timely deposited, the penalty rates are as follows. Penalty Charged for... 2% Deposits made 1 to 5 days late. 5% Deposits made 6 to 15 days late. 10% Deposits made 16 or more days late, but before 10 days from the date of the first notice the IRS sent asking for the tax due. 10% Amounts that should have been deposited, but instead were paid directly to the IRS, or paid with your tax return. But see Payment with return, earlier in this section, for exceptions. 15% Amounts still unpaid more than 10 days after the date of the first notice the IRS sent asking for the tax due or the day on which you received notice and demand for immediate payment, whichever is earlier.

Late deposit penalty amounts are determined using calendar days, starting from the due date of the liability. Special rule for former Form 944 filers. If you filed Form 944 for the prior year and file Forms 941 for the current year, the FTD penalty won’t apply to a late deposit of employment taxes for January of the current year if the taxes are deposited in full by March 15 of the current year. Order in which deposits are applied. Deposits are generally applied to the most recent tax liability within the quarter. If you receive an FTD penalty notice, you may designate how your deposits are to be applied in order to minimize the amount of the penalty if you do so within 90 days of the date of the notice. Follow the instructions on the penalty notice you receive. For more information on designating deposits, see Revenue Procedure 2001 -58.