When does a small law firm have to deposit payroll taxes?

On one of two schedules, set each year by a lookback period. A firm that reported $50,000 or less of employment taxes in its lookback period deposits monthly, by the 15th of the following month; a firm above $50,000 deposits semiweekly, within days of each payday. On any day the firm has accumulated $100,000 or more, the deposit is due the next business day.

Deposits are where small firms most often slip, and the penalty for a late deposit starts at 2 percent and can reach 15 percent. Keeping payroll on schedule is part of Kathryn Meyer's work on tax planning for law firms, and it matters most once an owner is on payroll after an S corporation election.

What has to be deposited

According to the IRS, an employer generally must deposit the federal income tax it withholds, any Additional Medicare Tax withheld, and both the employer and employee shares of Social Security and Medicare tax. These are reported quarterly on Form 941. Federal unemployment (FUTA) tax is separate: it is reported annually on Form 940, and a deposit is required for any quarter in which the FUTA tax owed exceeds $500.

Withheld income tax and the employees' share of Social Security and Medicare are what Publication 15 calls trust fund taxes, because the employees trust the employer to pay them over. That is why a missed deposit can become a personal problem for the owner; see whether the IRS can make you personally pay your company's unpaid payroll taxes.

How to find your deposit schedule, step by step

1. Identify your lookback period. For a Form 941 filer, the lookback period for calendar year 2026 is July 1, 2024 through June 30, 2025 (Publication 15, Table 1).
2. Add up the tax reported. Total the tax on Form 941, line 12, for those four quarters, using the amounts originally reported; later corrections on Form 941-X do not change the lookback total.
3. Apply the $50,000 test. $50,000 or less makes you a monthly schedule depositor for the year; more than $50,000 makes you a semiweekly schedule depositor.
4. If the firm is new, start monthly. Quarters before the business started count as zero, so a new Form 941 filer is a monthly depositor for its first calendar year.
5. Watch for a $100,000 day. If taxes accumulated on any day reach $100,000, deposit by the next business day, whatever your schedule.
6. Deposit electronically. All federal tax deposits must be made by electronic funds transfer, through EFTPS, IRS Direct Pay or your IRS business tax account, or by a payroll provider or bank on your behalf.
7. File Form 941 on time. It is due by the last day of the month after the quarter ends, or by the 10th day of the second month if every deposit for the quarter was made in full and on time.

The schedule depends on the tax reported, not on how often you pay employees. Publication 15 is explicit that the terms "monthly" and "semiweekly" describe which deposit rules apply, not payroll frequency.

The deposit deadlines

"Legal holiday" for deposits means a legal holiday in the District of Columbia, so Publication 15's 2026 list includes District of Columbia Emancipation Day on April 16 along with the federal holidays. Semiweekly depositors always get at least three business days after the semiweekly period closes.

Where the owner's own salary fits

Once an S corporation owner is on payroll, each paycheck adds withheld income tax and both halves of Social Security and Medicare to the firm's deposits. For 2026, Publication 15 sets Social Security at 6.2% each for employer and employee on wages up to $184,500, and Medicare at 1.45% each with no cap. FUTA tax is 6.0% on the first $7,000 of each employee's wages, or 0.6% after the full credit for state unemployment tax. At 0.6%, that is at most $42 per employee a year, so a small firm often stays under the $500 FUTA deposit threshold. Publication 15 adds a caution for owners: some states exclude wages paid to corporate officers from state unemployment tax, and in that case the FUTA credit can be smaller and the deposit larger.

The penalty for depositing late

Section 6656 of the Internal Revenue Code sets the failure-to-deposit penalty as a percentage of the amount not deposited on time, unless the failure was due to reasonable cause and not willful neglect. The IRS counts calendar days from the due date, and the tiers replace each other rather than add up.

If a penalty notice arrives, the options for removing it, including reasonable cause and the IRS's administrative waivers, are covered in whether IRS penalties can be removed.

What changes the answer

• The size of the lookback total. Crossing $50,000 moves the firm to the semiweekly schedule for the next year; Publication 15's examples show a firm moving from monthly in 2025 to semiweekly in 2026 when its lookback total grew.
• A $100,000 day. A monthly depositor that accumulates $100,000 on any day becomes a semiweekly depositor the next day, for the rest of that year and the following year (Publication 15). A large year-end bonus to an owner can be enough.
• Small quarters. If the tax for the current or prior quarter is under $2,500 and there was no $100,000 day, the tax can be paid with a timely Form 941 (Publication 15).
• Small shortfalls. Under the accuracy of deposits rule, no penalty applies to a shortfall that is no more than the greater of $100 or 2% of the required deposit, if it is made up by the shortfall makeup date (Publication 15).
• First-time depositors. Section 6656(c) lets the IRS waive the penalty for an inadvertent failure in the first quarter a deposit was required, or the first deposit after the deposit frequency changed, if the return was timely and the employer meets net worth limits; for a business, net worth of no more than $7 million and no more than 500 employees.
• How deposits are applied. Deposits generally go to the most recent liability in the quarter, but you can designate how they apply within 90 days of a penalty notice (Publication 15).
• Form 944 filers. An employer the IRS has told to file annual Form 944 uses a different lookback period, the second preceding calendar year (Publication 15).

For example: a two-lawyer firm in its second year

For example, imagine a two-lawyer S corporation that reported $38,000 of tax on its Forms 941 for July 2024 through June 2025. It is a monthly schedule depositor for 2026 and pays wages twice a month. Its payroll taxes for wages paid in September 2026 total $6,000, so the deposit is due by Thursday, October 15, 2026. If the deposit goes in on October 19, four days late, the penalty is 2%, or $120. If it goes in on October 26, eleven days late, the penalty is 5%, or $300. If the owner's December bonus pushes accumulated taxes to $100,000 on a single payday, that day's taxes are due the next business day, and the firm is a semiweekly depositor for the rest of 2026 and all of 2027. This is a hypothetical, not a real case.

Common mistakes with payroll deposits

• Matching deposits to payday frequency. A firm that pays monthly can still be a semiweekly depositor; the lookback total decides.
• Sending the money with Form 941. Unless the under-$2,500 rule or another exception applies, paying with the return instead of depositing carries a 10% penalty.
• Forgetting the $100,000 rule at bonus time. Large owner bonuses can trigger next-day deposits and a schedule change.
• Assuming the payroll provider handled it. Publication 5146 reminds employers that they remain ultimately responsible for the taxes even when payroll is outsourced, so check EFTPS or your business tax account to confirm each deposit actually posted.
• Using withheld taxes to cover a cash gap. The withheld amounts are trust fund taxes, and the IRS can pursue responsible people personally.
• Ignoring the first penalty notice. The 90-day window to designate deposits, and the jump to 15% after the notice, both start running from it.

What to do this week

1. Pull your Forms 941 for July 2024 through June 2025 and total line 12.
2. Confirm your 2026 schedule, and note whether 2027 will change.
3. Make a deposit calendar for the rest of 2026, adjusted for the legal holidays in Publication 15.
4. Log in to EFTPS or your business tax account and match each 2026 deposit to its payroll.
5. Plan any owner bonus with the $100,000 rule in mind.
6. If a deposit was late, gather the dates and the reason before any penalty notice arrives.

Frequently asked questions

Does an S corporation with only the owner on payroll have to deposit?

Yes, once the owner draws a salary the firm is an employer with Form 941 obligations. If its tax for the current or prior quarter is under $2,500, it may pay with a timely filed return instead; see how much salary an S corporation owner should take.

Do health insurance premiums for the owner change the deposits?

They are wages for income tax withholding, but when paid under a plan for employees they are excluded from Social Security, Medicare and FUTA wages. The details are in how S corporation owners handle health insurance.

Does withholding on my own salary replace estimated tax payments?

It can reduce or replace them. For estimated tax purposes, income tax withheld is generally treated as paid in equal parts on each due date, which is explained in how a law firm owner should handle quarterly estimated taxes.

When are Forms W-2 due?

The IRS says Forms W-2 must be furnished to employees and filed with the Social Security Administration by January 31.

What if the firm cannot make a deposit at all?

Pay current deposits first and get advice quickly, because unpaid trust fund taxes can lead to the Trust Fund Recovery Penalty and to collection action. The IRS's payment options are described in what IRS payment plan options there are.

Is a late deposit ever excused?

Yes, when the failure was due to reasonable cause and not willful neglect, or under the first-time depositor and administrative waivers. Each has conditions, and a written request usually needs the facts and dates.

Does treating a worker as a contractor avoid deposits?

Only if the worker truly is a contractor. If the IRS later decides the worker was an employee, the firm can owe the payroll taxes it did not withhold, as explained in what happens in an IRS worker classification audit.

Keeping payroll on schedule

Kathryn Meyer spent more than two decades in the IRS Office of Chief Counsel and helps law firms set up payroll so deposits, returns and owner compensation line up. A review of tax compliance is part of the Annual Tax Health Checkup. Contact the firm or call (571) 560-8674.

Sources

• IRS Publication 15 (2026), Employer's Tax Guide
• 26 U.S.C. 6656, Failure to make deposit of taxes
• IRS, Failure to deposit penalty
• IRS, Depositing and reporting employment taxes
• IRS, S corporation compensation and medical insurance issues
• IRS Publication 5146, Employment Tax Returns: Examinations and Appeal Rights
• 26 U.S.C. 6654, Failure by individual to pay estimated income tax