EFTPS (Electronic Federal Tax Payment System)

The Electronic Federal Tax Payment System is the mandatory channel for most federal tax deposits. Employers use it for withheld income tax and the employer and employee shares of Social Security and Medicare, for FUTA deposits over $500 in a quarter, and for corporate estimated tax. Payments are scheduled in advance — up to 365 days ahead for businesses — and settle by direct debit on the date chosen.

Enrolment is not instant. After registering online with the business EIN, bank details and address, the IRS posts a PIN by mail, typically within five to seven business days, and a separate internet password is then set. A new company that waits until its first payroll to enrol will miss its first deposit deadline, which is why enrolment belongs in company formation, not in the first pay run.

Employers are either monthly or semi-weekly depositors, determined by a lookback period covering the four quarters ending the previous 30 June. If total employment tax liability in that window was $50,000 or less, deposits are monthly and due by the 15th of the following month. Above $50,000, deposits are semi-weekly: liabilities for paydays falling Wednesday to Friday are due the following Wednesday, and paydays Saturday to Tuesday are due the following Friday. Any employer accumulating $100,000 or more of liability on a single day must deposit by the next business day and switches to semi-weekly immediately.

Payments must be scheduled by 8:00 pm Eastern Time on the day before the due date to count as timely. This catches out West Coast finance teams who treat the deadline as end of business on the due date itself.

Failure-to-deposit penalties are tiered: 2% for deposits one to five days late, 5% for six to fifteen days, 10% beyond fifteen days, and 15% once the IRS issues a demand notice. Paying by cheque when electronic deposit is required is itself treated as a 10% failure, even if the money arrives on time. Payroll providers usually deposit on the employer's behalf, but the legal liability stays with the employer — the trust fund recovery penalty can be assessed personally against officers who controlled the funds.