Payroll for small business comes down to three jobs. You pay your people, you send the taxes you hold back to the IRS on time, and you file the returns that report them. Your deposit dates follow an IRS schedule, not how often you pay people. The deposits have the strictest dates, so this guide spends the most time there.
These are the federal rules as of October 2026, taken from IRS pages checked on October 12, 2026.
What payroll for small business includes
When you pay an employee, you keep back part of their pay for taxes. That is called withholding. You hold back federal income tax and the employee’s share of Social Security and Medicare. You add your own share of Social Security and Medicare, and you send the total to the IRS [3].
The IRS treats the withheld money as held “in trust.” It is part of your employee’s wages, not your money [3]. That is why the rules are strict.
There is one more federal tax. FUTA is the federal unemployment tax. Only you, the employer, pay it. You never take it out of an employee’s paycheck [2].
So each round of payroll has three parts:
- Pay: work out each person’s gross pay (their pay before anything is taken out), subtract the withholding, and pay the rest.
- Deposit: send the withheld taxes and your share to the IRS by the due date.
- Report: file the returns that show what you paid and what you deposited.
Before the first payday: what to collect from each new hire
Collect these from each new hire before their first payday.
- Form W-4. It sets how much federal income tax comes out of each check. Ask each new employee for a signed W-4 when they start, and use it from their first paycheck.
If someone does not hand one in, the IRS says to withhold as if they were single [5].
- Form I-9. This proves the person may work in the United States. You and the employee both fill it in, for every hire, citizens included [5].
- Social Security number. You need each employee’s name and Social Security number for their W-2. Do not accept an ITIN (a tax ID for people who cannot work in the U.S.) in its place [5].
- Your EIN. This is your business’s employer identification number. You need a valid one to file or pay electronically, or the IRS will not process the payment [1].
Monthly or semiweekly: your payroll tax deposit schedule
Here is the part that trips people up. Your deposit schedule has nothing to do with how often you pay staff. You can pay people every week and still be a “monthly” depositor [4].
Instead, the IRS looks at a “lookback period.” Form 941 is the quarterly payroll return. If you have filed only Form 941, your lookback period runs from July 1 two years back to June 30 of last year. For 2026, that is July 1, 2024, through June 30, 2025 [4]. Add up the taxes you reported on Form 941 for those four quarters. A quarter is three months: January to March, April to June, July to September, or October to December.
| Taxes you reported in the lookback period | Your schedule | When each deposit is due |
|---|---|---|
| $50,000 or less | Monthly | By the 15th of the next month [3] |
| More than $50,000 | Semiweekly (two possible due dates each week) | Paid Wednesday, Thursday or Friday: by the next Wednesday. Paid Saturday, Sunday, Monday or Tuesday: by the next Friday [3] |
The $100,000 rule. Whatever your schedule, if $100,000 or more in taxes builds up on one day, deposit it by the next business day. From then on, you are a semiweekly depositor for the rest of that year and the next [3][4]. A business day is any day except a Saturday, Sunday or legal holiday in Washington, D.C. [4].
New business? If you have never filed Form 941, you are a monthly depositor for your first calendar year, unless the $100,000 rule applies [4]. So even with a weekly payroll, all of a month’s taxes are due by the 15th of the following month [3].
What counts is the day you pay, not the day the work was done. Say staff worked in June but you paid them in July. A monthly depositor deposits those taxes by August 15 [3].
Very small payrolls. Is your tax under $2,500 for this quarter or the one before? If so, you may be able to pay it with your quarterly return, filed on time, instead of making deposits [4]. Deposits are required when your tax is $2,500 or more in this quarter and was $2,500 or more in the quarter before [3]. Not sure you will stay under $2,500 this quarter, and last quarter was not under? Make deposits anyway to avoid penalties [4].
How to make a deposit
Every federal tax deposit has to be electronic [2]. There are three free ways to send it. Use EFTPS (the Treasury’s payment system), IRS Direct Pay for businesses, or your online IRS business tax account [2]. A bank, tax professional or payroll service can also send the deposit for you, sometimes for a fee [2].
Watch the clock. For EFTPS, schedule the payment by 8 p.m. Eastern time the day before it is due [4]. Miss that cutoff and EFTPS can no longer get your payment there on time. A same-day wire through your bank still can, but set it up with your bank ahead of time and ask about fees [4].
The filing calendar
Deposits pay the tax. Returns report it. Paying the deposit does not count as filing the return [1].
| Form | What it reports | Due date |
|---|---|---|
| Form 941 | Withheld income tax, Social Security and Medicare, each quarter | The last day of the month after each quarter ends. October to December is due Jan. 31 [1] |
| Form 940 | Federal unemployment tax (FUTA) for the year | Jan. 31 [1] |
| Form W-2, with Form W-3 (the cover form for your W-2s) | Each employee’s wages and withholding for the year | To employees and to the Social Security Administration by Jan. 31 [2] |
| Form 1099-NEC | Payments to independent contractors | To the IRS and to each contractor by Jan. 31 [1] |
If you made every deposit on time, you get 10 extra calendar days to file Form 941 or Form 940 [1]. If a due date lands on a weekend or legal holiday, you can file on the next business day [1].
FUTA has its own deposit rule.
Add up the FUTA you owe for the quarter, plus anything carried over. Once that is over $500, deposit it by the last day of the month after the quarter ends [2][3]. If it stays at $500 or less, carry it to the next quarter [1]. If it is still $500 or less in the fourth quarter, you can deposit it or pay it with Form 940 by Jan. 31 [1].
One more January job. Filing 10 or more W-2s and 1099s in all? Then you must file them online, not on paper [1].
What a late payroll deposit costs
The IRS charges a failure-to-deposit penalty. It is a percentage of the tax you did not deposit on time, in full, or in the right way [6].
| How late the deposit is | Penalty |
|---|---|
| 1 to 5 calendar days | 2% of the unpaid deposit |
| 6 to 15 calendar days | 5% |
| More than 15 calendar days | 10% |
| More than 10 days after the first IRS notice, or the day you get a notice asking for immediate payment | 15% |
Source for the table: the IRS failure-to-deposit penalty page [6].
The tiers do not stack. A deposit that is 20 days late costs 10%, not 2% plus 5% plus 10% [6]. Interest is charged on the penalty too [6]. Did you have a real reason for being late, and act in good faith? If so, you can ask for the penalty to be removed or reduced, and the IRS may agree [6].
Owe more than you can pay? The IRS suggests paying what you can now and applying for a payment plan, which can reduce future penalties [6].
A simple example
Picture a new shop with two employees, paid every Friday. Assume its payroll taxes are over $2,500 a quarter, so it must make deposits. This is its first year, so it is a monthly depositor [3]. Here is its fall quarter:
- In October, the owner withholds tax from each Friday paycheck.
- All of October’s taxes go in one deposit, due November 15. In 2026, November 15 is a Sunday, so the due date moves to Monday, November 16 [4]. The owner schedules it in EFTPS by 8 p.m. Eastern on Sunday, November 15 [4].
- November and December repeat the same pattern.
- By the January due date, the owner files Form 941 for October to December and Form 940 for the year. Both employees get their W-2s [1]. Jan. 31, 2027 is a Sunday, so returns due that day can be filed on Monday, February 1 [1].
Put every one of these dates in your calendar now.
Limits: what this guide does not cover
This guide covers federal payroll rules only. Your state may have its own income tax withholding, unemployment tax and new-hire reporting. Ask your state’s revenue and labor departments what they need from you.
It also leaves out farm workers (Form 943) and railroad workers (Form CT-1) [1]. Household employees have their own rules too. And it does not tell you how to decide whether a worker is an employee or a contractor. That choice changes which of these rules apply, so get advice if you are unsure.
How we can help
Hemlock Financial Group’s bookkeeping services cover routine financial tasks, including processing payroll, reconciling bank and credit card statements, and preparing financial statements each month. Want help keeping payroll on track? Book a consultation and ask what our bookkeeping service would cover for you. For a wider look at what good books include, see our guide to bookkeeping for small businesses, or how virtual bookkeeping works for startups.
Frequently asked questions
Can a payroll service make my tax deposits?
Yes. A payroll service, tax professional or bank can send electronic deposits for you, though they may charge a fee [2]. Their cutoff times can differ from the EFTPS cutoff, so ask when they need your money [4].
What if a new employee never turns in a W-4?
Withhold federal income tax as if the employee is single [5]. Once they give you a W-4, use it. It keeps applying until they hand you a replacement [5].
Do very small employers file Form 941?
Most employers file Form 941 every quarter. Some very small employers owe $1,000 or less in employment taxes a year. They file Form 944 once a year instead, only if the IRS tells them in writing to do so [1].
Does payroll for small business include contractors?
No. Contractors are not run through payroll, and payments to them are reported on a different form. The IRS sets a reporting minimum, listed in the Form 1099-NEC instructions. If your payments to a contractor reach it, send them a Form 1099-NEC by Jan. 31 [1].
This article is for informational and educational purposes only. It is not tax, legal or financial advice for your situation. Talk with a qualified professional before you act.
Sources
- IRS: Employment tax due dates: Forms 941, 940, W-2, 1099-NEC and 944 due dates, the 10-day extension, FUTA deposits, e-file threshold, EIN requirement
- IRS: Depositing and reporting employment taxes: electronic deposit methods, FUTA paid only by the employer, W-2 filing with the SSA by January 31
- IRS: What are FTDs and why are they important?: trust fund taxes, deposit thresholds, monthly and semiweekly schedules, new employers, $100,000 rule, paid-not-earned rule
- IRS: Topic no. 757, Forms 941 and 944, deposit requirements: lookback period, schedule is not about pay frequency, under-$2,500 rule, 8 p.m. EFTPS cutoff, third-party cutoff times
- IRS: Hiring employees: Form W-4, Form I-9, Social Security numbers, ITINs
- IRS: Failure to deposit penalty: penalty tiers, no stacking, interest, reasonable cause, payment plans
