What is a tax deposit?

A tax deposit is a payment of withheld or unpaid taxes to the appropriate tax authority, typically made electronically through systems such as EFTPS for federal taxes. For professional service firms with employees, tax deposits are required on specific schedules with penalties for late payment.

Key characteristics

• Payment to the tax authority

• Includes withheld and employer taxes

• Required on a specific schedule

• Made electronically for the federal

• Late deposits trigger penalties

• Must match filing amounts

Why it matters for professional service firms

Tax deposits are mandatory and subject to strict deadlines. Late deposits trigger escalating penalties regardless of circumstances. Professional service firms must make deposits on their required schedule, whether monthly or semiweekly, without exception.

Real-world example

Patricia's firm had monthly deposit requirements. Each month by the 15th, she deposited: federal income tax withheld ($8,400), employee FICA ($4,200), and employer FICA ($4,200), totaling $16,800. Deposits made through EFTPS 3 days before the deadline as a buffer. Quarterly Form 941 reconciled total deposits to total liability, confirming accuracy.