Untimely Tax Deposits
October 02, 2016
Every once in a while we visit the topic of timely tax deposits in this blog. It's been a while, and judging by recent comments made by the IRS's Stephen Tackney (in the session The IRS and Treasury Speak at the recent 22nd Annual NASPP Conference), there are a significant number of companies still not in compliance with the IRS's requirements for tax deposits, the most egregious likely being those companies who should be making accelerated tax deposits but aren't doing so. This time instead of the standard recap on the tax deposit rules (see NASPP Blog from May 26, 2011 for that detail), I'm going to challenge our readers to a quiz! How knowledgeable are you about the IRS deposit requirements?
The answers are below, but all fun aside - this is an area where companies should pay attention. It's clear that late deposits may be subject to penalties and interest. Given the public opinion shared by at least one IRS staffer regarding the agency's awareness that many companies are not making timely deposits, companies should be concerned that this may become an area of focus or even audit for the IRS.
Most of us are aware that common triggers for accelerated deposits that come from the equity plan side are restricted stock/unit vesting events (performance and time based) and large volume or sized stock option exercises. We are probably well attuned to the fact that the $100,000 or more figure is cumulative - not just reflective of equity transactions, but rather all federal employment tax withholding/liability for an entity. However, without careful coordination between payroll and stock administration, it's hard to know when this amount is exceeded. For example, a stock option exercise with taxes at the $50,000 mark may seem well below the $100,000 threshold to the stock administration group - until the company payroll department realizes that bonuses were taxed on the same day (or even two days ago, yesterday or tomorrow or the next day if those days fall within the same deposit period). Additionally, some personnel may incorrectly assume that the period of time over which the $100,000 or more in cumulative tax withholding figure is measured is the payroll cycle. That is actually not the case. The calculation is based on the company's deposit schedule with the IRS (there are two types of deposits - either monthly or semi-weekly - most NASPP members fall into the semi-weekly category).
The cumulative calculation resets each deposit period. For example, if the company is on a semi-weekly deposit plan (making two deposits to the IRS each week), and the end of one deposit period was Tuesday, then taxes withheld on Wednesday would not be combined with Tuesday's since Wednesday is in a different deposit period.
IRS's Tackney suggested that many companies are ignoring the next day deposit requirements when their cumulative tax withholding in the deposit period meets or exceeds $100,000, choosing instead to deposit the taxes as part of their normal schedule of deposits. For companies still taking that approach and hoping that they don't get caught, be aware that the IRS is aware this practice.
For additional details, see:
IRS's Notice 931 (rev October 2014),
NASPP blog entry (May 26, 2011)
Answers: C, C, C, B