The NASPP Blog

Last week I did a pop quiz on some of the nuances of making timely tax deposits to the IRS. I’ll admit, some of the questions were a bit detailed – covering points that may not be well known to a lot of us. More than 250 of you responded! The results of the quiz suggest a bit of room to provide some additional education in this area, so today I’ll tackle some of the explanations behind last week’s questions.

Question 1: The IRS requires accelerated deposit of federal employment taxes when the cumulative liability exceeds $100,000 during what period of time?

79% of poll respondents answered “any single day”, which is a common misconception and incorrect. The correct answer to that question was “during the IRS defined deposit period”, which was chosen by 12% of respondents. The short story on this is that the IRS has two deposit schedules – monthly and semi-weekly. Most NASPP members fall into the semi-weekly category, making twice weekly deposits of federal payroll taxes to the IRS. When the cumulative federal tax withholdings reach or exceed $100,000 during the payroll deposit period, then accelerated deposit is required (within one business day of reaching $100,000 or more).

Question 2: Which types of taxes count towards calculating cumulative withholdings for purposes of determining if accelerated (next day) deposit is necessary?

This question seemed to raise confusion – the responses were all across the 4 possible choices. Only 11% of respondents chose the correct answer, which is *all* federal taxes, which are: federal, and both employee and employer portions of Medicare and social security taxes. Essentially, anything owed to the IRS for tax deposits (including employer portion) counts towards determining if the company has accumulated $100,000 or more in taxes due to the IRS.

Question 3: Accelerated deposits are due to the IRS by the next business day. What happens when the “next business day” falls on a day when the IRS is closed (e.g. legal holiday recognized by IRS but not your company)?

The majority of respondents (70%) came up with the correct answer, which is “The deposit needs to be made by the next business day that the IRS is open – so that would be the next business day after the holiday.” However, 24% of respondents thought that they still may need to make the deposit to the IRS if their company wasn’t closed on the holiday, answering “The IRS expects the deposit anyway, and the IRS systems will accept the payment even if the agency is closed.” To clarify – the IRS defines business day as a day that is not a Saturday, Sunday or legal holiday. If the IRS is closed, then payroll deposits can be made timely the next business day that the IRS is open.

Question 4: How does the IRS define a “legal holiday” for purposes determining whether it is considered a business day or not?

Many respondents seemed stumped by this question, because the answers were all over the place. 40% felt that if it were a legal holiday somewhere, then it was a legal holiday for IRS tax deposits. 35% of participants felt that a “legal holiday” was any holiday observed by the banking industry. Both of these answers (representing 75% of responses) are incorrect. The right answer is that a “legal holiday” is any legal holiday observed in the District of Columbia, where the IRS resides (26% came up with this answer). The District of Columbia does have at least one “legal” holiday not observed in other jurisdictions – Emancipation Day in April. It’s wise to check the IRS’s annual calendar of legal holidays each year and share those with the payroll department.

While stock plan administrators may not be the primary person responsible for making tax deposits to the IRS, we are in a unique position in that we may often know of situations where the $100,000 threshold will be reached in a deposit period, triggering the accelerated tax deposit deadline. However, there are also situations where the stock plan administrator may not know with certainty that the cumulative amount has been reached, since it is indeed cumulative – covering all of the organization’s federal taxes on hand. With the IRS recently expressing more interest in monitoring late tax deposits, stock plan administrators should work closely with their Payroll departments to ensure all the nuances of accelerated and timely tax deposits are understood and covered.

-Jennifer