How you pay payroll taxes depends on your business structure and how many employees you have

Most small business owners pay payroll taxes through the IRS Electronic Federal Tax Payment System (EFTPS), a free online platform where you deposit federal income tax withholding, Social Security tax, and Medicare tax on a schedule set by the IRS. If you have employees, you are required to pay these taxes — you cannot choose to skip them or pay late without penalties. The IRS tells you when payments are due based on how much you owe in a given period, usually either weekly, biweekly, or monthly.

Some employers use a payroll service provider or accountant to handle the deposits on their behalf, which costs money but removes the administrative burden. Others use their bank's bill-pay system if their bank offers payroll tax payment. The method you choose does not change what you owe or when it is due — it only changes who physically submits the money.

State payroll taxes follow a separate schedule and process, and they vary significantly by state. Some states have no income tax at all, while others require monthly deposits and quarterly filings. You will need to contact your state's revenue or labor department to learn your state's specific deadlines and payment methods.

Key Takeaways

  • Federal payroll taxes are deposited through EFTPS, your bank, or a payroll service, and the IRS sets your payment schedule based on how much you owe.
  • Payment due dates are determined by IRS rules, not by you — missing a deadline triggers penalties and interest that compound quickly.
  • You must pay federal income withholding, Social Security tax (6.2% of wages up to a cap), and Medicare tax (1.45% of all wages) for every employee.
  • State payroll tax deadlines and methods vary by state and must be researched separately from federal requirements.
  • Using a payroll service or accountant costs money but reduces the risk of missed deadlines and calculation errors.

Setting up EFTPS for the first time

To use EFTPS, you need an Employer Identification Number (EIN) from the IRS, which you receive when you register your business. Go to eftps.gov, click "Enroll Now," and follow the prompts to create an account. You will need your EIN, business name, address, and a phone number. The IRS will mail you a Personal Identification Number (PIN) within two weeks, which you use to log in and make payments.

Once enrolled, you can schedule payments up to 120 days in advance. The IRS recommends scheduling payments the day before they are due to avoid missing the deadline. If you miss a deadline, you owe a failure-to-pay penalty on top of the taxes themselves — currently 0.5% per month of the unpaid amount, though this can increase if the IRS sends you a notice.

If you do not want to use EFTPS, you can pay through your bank's bill-pay system or hire a payroll processor. Your bank must be approved by the IRS to accept payroll tax payments, so confirm this before relying on it. A payroll service like ADP, Gusto, or Paychex will deposit taxes on your behalf as part of their service, though you pay a monthly fee.

Understanding your payment schedule

The IRS uses two main deposit schedules: monthly and semiweekly. Which one applies to you depends on how much payroll tax you reported in a lookback period — usually the four quarters of the previous year. If your total payroll tax for the lookback period was $50,000 or less, you are on a monthly schedule and must deposit taxes by the 15th of the following month. If it was more than $50,000, you are on a semiweekly schedule.

On a semiweekly schedule, the due date depends on when you pay your employees. If you pay on Wednesday, Thursday, or Friday, taxes are due the following Wednesday. If you pay on Saturday, Sunday, Monday, or Tuesday, taxes are due the following Friday. This means you could have two deposit deadlines in a single week if you pay employees twice weekly.

The IRS sends you a notice (Form 941-S or a letter) telling you which schedule applies to you. If you are unsure, contact the IRS at 800-829-1040 or check your account on EFTPS. Switching schedules happens automatically based on your lookback period — you do not request it.

What taxes you are paying and how much

When you deposit payroll taxes, you are paying three separate federal taxes: federal income tax withholding, Social Security tax, and Medicare tax. Federal income tax withholding is the amount you deducted from each employee's paycheck based on their W-4 form. Social Security tax is 6.2% of wages up to an annual cap (the cap changes yearly — it was $168,600 in 2024). Medicare tax is 1.45% of all wages with no cap.

As an employer, you also owe a matching amount: 6.2% for Social Security and 1.45% for Medicare. This means if an employee earns $1,000 and you withhold $76.20 in Social Security and Medicare taxes, you also owe $76.20 as the employer match. The total tax deposit includes both the employee withholding and your employer match.

Your payroll system (whether it is software, a service, or a spreadsheet) should calculate these amounts automatically. If you are doing it manually, the math is straightforward but easy to get wrong — this is why many small business owners use a payroll service even if they only have one or two employees.

Reconciling taxes on your quarterly and annual returns

Every quarter, you file Form 941 (Employer's Quarterly Federal Tax Return) with the IRS. This form reports the total wages you paid, the total federal income tax you withheld, and the total Social Security and Medicare taxes (both employee and employer portions). The IRS compares what you report on Form 941 to the deposits you made through EFTPS. If you deposited more than you owed, you get a credit. If you deposited less, you owe the difference plus penalties.

At the end of the year, you file Form 940 (Employer's Annual Federal Unemployment Tax Return), which reports Federal Unemployment Tax Act (FUTA) taxes. FUTA is a separate tax from income and Social Security/Medicare taxes — it is 6% of the first $7,000 of each employee's wages (though you may receive a credit if you paid state unemployment tax). Most employers deposit FUTA annually in January, though if your FUTA liability exceeds $500 in a quarter, you must deposit it quarterly.

You also send each employee a W-2 form by January 31st, which reports their annual wages and the taxes withheld. The IRS receives a copy of every W-2 you issue, so the numbers must match what you reported on your quarterly 941 forms.

State payroll taxes and how they work

State income tax withholding is separate from federal withholding and follows each state's own rules. Some states have no income tax (including Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming), so you do not withhold or deposit state income tax in those states. Other states require monthly deposits, while a few allow quarterly or annual payments.

Most states use a form similar to the federal 941 to report state payroll taxes. You will need to contact your state's revenue department or labor department to learn the specific deadlines, payment methods, and forms required. Many states offer online payment systems similar to EFTPS, while others require payment through your bank or a third-party processor.

State unemployment insurance (SUI) is also separate and required in every state. You pay this tax as an employer (employees do not have it withheld from their paychecks), and the rate varies by state and by industry. You report SUI on a separate state form, usually quarterly or annually depending on your state.

What happens if you miss a payment deadline

If you do not deposit payroll taxes by the due date, the IRS assesses a failure-to-pay penalty of 0.5% per month of the unpaid amount. If the IRS sends you a notice and you still do not pay, the penalty can increase to 1% per month. Additionally, you owe interest on the unpaid taxes, which is compounded daily. The longer you wait, the more you owe in penalties and interest on top of the original tax.

The IRS can also place a federal tax lien on your business assets if you owe payroll taxes and do not pay. This lien gives the IRS a legal claim to your property and can prevent you from selling or refinancing. In extreme cases, the IRS can seize your bank account or garnish your personal income if you are a sole proprietor or partner.

If you realize you will miss a deadline, contact the IRS immediately. You can request a short-term extension (usually a few days) or a payment plan. Paying late with penalties is better than not paying at all, because it stops the penalties from growing and shows the IRS you are trying to resolve the issue.

Using a payroll service versus handling it yourself

A payroll service (such as ADP, Gusto, Paychex, or Square Payroll) calculates taxes, deposits them on your behalf, and files your quarterly and annual forms. The cost ranges from $20 to $100+ per month depending on the service and how many employees you have. For a business with one or two employees, this might seem expensive, but it eliminates the risk of calculation errors and missed deadlines.

Handling payroll yourself requires you to calculate withholding correctly, track deposits, file quarterly 941 forms, and reconcile everything at year-end. If you make a mistake — such as depositing the wrong amount or missing a deadline — you pay the penalty. Many small business owners find that the cost of a payroll service is worth the peace of mind and the time saved.

If you use an accountant or bookkeeper, they can also handle payroll tax deposits and filings as part of their service. This is often less expensive than a dedicated payroll service if you are already paying for accounting help, but you need to confirm that payroll taxes are included in what they offer.

Frequently Asked Questions

What if I have employees in multiple states?

You must follow the payroll tax rules for each state where you have employees. This means depositing federal taxes through EFTPS and state taxes through each state's system, and filing quarterly and annual returns in each state. If you have employees in many states, a payroll service becomes especially valuable because it handles the different deadlines and rules automatically.

Do I have to pay payroll taxes if my business has no profit?

Yes. Payroll taxes are based on wages paid to employees, not on your business profit. If you pay an employee $2,000, you owe payroll taxes on that $2,000 even if your business lost money that month. The only exception is if you have no employees — sole proprietors and partners do not pay payroll taxes on their own income (they pay self-employment tax instead).

Can I pay payroll taxes late if I do not have the money?

No, but you can request a payment plan. Contact the IRS at 800-829-1040 and explain your situation. The IRS may allow you to pay in installments, though you will still owe penalties and interest. Ignoring the debt makes it worse because penalties and interest compound. Paying even a partial amount on time is better than paying the full amount late.

What if I made a mistake on a payroll tax deposit?

Contact the IRS as soon as you discover the error. If you overpaid, the IRS will credit the overpayment to your next deposit or refund it. If you underpaid, you owe the difference plus penalties and interest. The sooner you report the error, the smaller the penalty will be. Do not wait until the IRS notices the discrepancy on your quarterly 941 form.

Do I need to pay payroll taxes if I am a sole proprietor with no employees?

No. Sole proprietors pay self-employment tax (Social Security and Medicare) on their own income, not payroll taxes. Payroll taxes only apply when you have employees on your payroll. If you hire a contractor instead of an employee, you do not withhold or deposit payroll taxes — the contractor is responsible for their own taxes.