Deposit Rules for Small Businesses Simplified

On January 1, the IRS ended its monthly employment tax deposit requirements for many small businesses, allowing them, instead, to make such payments quarterly.

Businesses now can make employment tax payments every three months if the amount is under $2,500. Previously, the IRS permitted quarterly payments only for businesses whose payments were less than $1,000. The threshold, which had been $500, was raised to $1,000 in 1998. After further study, the IRS increased the threshold to the current $2,500. Small businesses that are above the new threshold level still have to make monthly payments. The change in deposit requirements affects approximately one million small businesses, which make tax payments of $6.6 billion, or about 13% of the $52.7 billion total.

Not only will the change mean less paperwork for small businesses and the IRS, but it also will create a number of other advantages:

IRS notices to small businesses are expected to decrease about 70% because there will be fewer deposits.

Because deposits will be less frequent, small businesses will make fewer mistakes and will incur fewer penalties.

Making payments quarterly instead of monthly will help ease small businesses’ cash flow.

Small businesses with employment tax deposits of less than $2,500 per quarter may pay them when they file Form 941, Employer’s Quarterly Federal Tax Return.