The short answer
When you have employees, you take on four separate federal duties: withholding taxes from employees' pay, paying the employer's share, depositing those taxes electronically on a set schedule, and filing returns — usually Form 941 every quarter and Form 940 every year. Withheld income, Social Security, and Medicare taxes are held in trust for the government; if they are not paid over, certain individuals can be held personally liable under the Trust Fund Recovery Penalty.
Which taxes are involved
| Tax | Employee | Employer | Reported on |
|---|---|---|---|
| Federal income tax withholding | Withheld from wages based on Form W-4 | No employer share | Form 941 |
| Social Security | 6.2% withheld | 6.2% paid by the employer | Form 941 |
| Medicare | 1.45% withheld | 1.45% paid by the employer | Form 941 |
| Additional Medicare Tax | 0.9% withheld on wages over $200,000 in the year | No employer share | Form 941 |
| FUTA (federal unemployment) | Not withheld — never taken from employee pay | 6.0% on the first $7,000 per employee, generally reduced by a credit of up to 5.4% | Form 940 |
For 2026, the Social Security wage base is $184,500: Social Security tax stops once an employee's wages for the year reach that amount. Medicare tax has no wage base limit.
Form 941 and Form 940
- Form 941 reports wages, withheld income tax, and both shares of Social Security and Medicare for each quarter. It is due by the last day of the month after the quarter ends — April 30, July 31, October 31, and January 31. If you deposited all taxes for the quarter on time and in full, you may file by the 10th day of the second month after the quarter (for example, May 10).
- Form 944 is an annual return used instead of Form 941 only by small employers the IRS has notified to file it.
- Form 940 reports FUTA tax for the calendar year. The 2025 Form 940 is due February 2, 2026, or February 10, 2026, if you deposited all FUTA tax when due.
Deposits: monthly or semiweekly
Your deposit schedule is not determined by how many employees you have or how often you pay them. For a Form 941 filer, it depends on the taxes reported on Form 941, line 12, during the lookback period. For 2026, the lookback period is July 1, 2024, through June 30, 2025.
| Rule | When it applies | Deposit due |
|---|---|---|
| Monthly schedule | Lookback-period taxes of $50,000 or less (and new employers in their first calendar year) | By the 15th day of the following month |
| Semiweekly schedule | Lookback-period taxes of more than $50,000 | Wages paid Wednesday, Thursday, or Friday: by the following Wednesday. Wages paid Saturday through Tuesday: by the following Friday |
| $100,000 next-day rule | You accumulate $100,000 or more of taxes on any day during a deposit period | By the next business day; you then become a semiweekly depositor for the rest of the year and the next year |
| $2,500 de minimis rule | Your taxes for the current or prior quarter are less than $2,500 and you did not trigger the $100,000 rule | You may pay with a timely filed return instead of depositing |
Deposits must be made by electronic funds transfer, generally through EFTPS. FUTA tax is deposited separately: deposit it by the last day of the month after a quarter once your undeposited FUTA tax is more than $500; if it is $500 or less, carry it to the next quarter.
Deposit penalties
| Penalty | When it applies |
|---|---|
| 2% | Deposit made 1 to 5 days late |
| 5% | Deposit made 6 to 15 days late |
| 10% | Deposit made 16 or more days late; also amounts paid directly to the IRS or with the return instead of deposited |
| 15% | Amounts still unpaid more than 10 days after the first IRS notice asking for the tax, or the day you receive a notice and demand for immediate payment, whichever is earlier |
Days are counted as calendar days. The IRS may waive deposit penalties for reasonable cause, and first-time abatement may be available; see IRS penalty relief.
The Trust Fund Recovery Penalty
- What it covers: trust fund taxes — withheld federal income tax and the employee share of Social Security and Medicare. The penalty is 100% of the unpaid trust fund tax.
- When it is used: if the unpaid taxes cannot be immediately collected from the employer or business.
- Who can be liable: each person the IRS determines was responsible for collecting, accounting for, or paying over the taxes and acted willfully. A responsible person can be an officer or employee of a corporation, a partner or employee of a partnership, an accountant, a volunteer director or trustee, or anyone with authority to decide how business funds are spent.
- Willfully means voluntarily, consciously, and intentionally. A responsible person acts willfully if the person knows the required actions of collecting, accounting for, or paying over trust fund taxes are not taking place, or recklessly disregards obvious and known risks to the government's right to receive them.
Owning part of a business does not by itself make someone liable; the IRS must determine that both the responsibility and willfulness standards are met.
FUTA example: California, 2025
A California employer pays one employee $40,000 in 2025 and pays its California unemployment tax on time. California is a credit reduction state for 2025 at 1.2% (the U.S. Virgin Islands is the other 2025 credit reduction jurisdiction, at 4.5%).
| Step | Amount |
|---|---|
| FUTA wages (first $7,000 only) | $7,000 |
| FUTA tax before credit (6.0%) | $420 |
| Credit for state unemployment tax (5.4%) | −$378 |
| FUTA tax after full credit (0.6%) | $42 |
| California credit reduction (1.2% × $7,000), figured on Schedule A (Form 940) | +$84 |
| Total 2025 FUTA tax for this employee | $126 |
The credit reduction is treated as a fourth-quarter liability. Because this employer's total FUTA tax is $500 or less, it could either deposit it or pay it with Form 940 by February 2, 2026; employers with more than $500 of fourth-quarter FUTA tax must include the credit reduction in their fourth-quarter deposit. This example applies to 2025 wages only. Credit reduction states and rates are determined separately each year; the final 2026 list had not been announced when this guide was reviewed.
Taxes withheld from employees' pay belong to the government. Paying rent or suppliers with that money instead of depositing it can lead to deposit penalties for the business and, if the taxes remain unpaid, to the Trust Fund Recovery Penalty against responsible individuals. If you cannot make a deposit, contact the IRS promptly rather than waiting.