$100,000 Federal Tax Liability Wiring Integration Guide
Ensure timely tax payments by understanding the $100,000 Next-Day Deposit Rule and wiring requirements.
Overview
The IRS has a requirement for companies that accumulate $100,000 or more in taxes on any day during a deposit period called the $100,000 Next-Day Deposit Rule. Companies that hit this tax liability threshold on any day during their deposit period must submit their taxes by the next business day, whether the company is a monthly or semiweekly scheduled depositor. Failure to pay the full amount on time will result in penalties and interest as assessed by the IRS.
To limit credit risk exposure, under certain conditions Check requires wires for payrolls if the company's cumulative federal tax liability exposure breaks the $100,000 limit during any given deposit period. Specifically Check requires a wire if ALL of the following conditions are true:
1. A company's cumulative federal tax liability is at or above the $100,000 threshold
2. AND the company is not approved for accelerated processing periods
3. AND the funding method for the payroll is ACH
4. AND there are fewer than three banking days between when the payroll is approved and payday
This case typically arises when a company that is not approved for accelerated processing periods runs a payroll with all payments to employees and contractors set to `manual`. In this scenario Check allows approval of the payroll up until end of day on payday, but we must require a wire for the tax funds to protect ourselves from credit risk.
What is a deposit period?
A deposit period is the period during which tax liabilities are accumulated for a business.
Deposit Periods | |
Monthly Schedule* | Calendar Month |
Semiweekly Schedule | Wednesday through Friday
Saturday through Tuesday |
- Please note: If your company is on a monthly deposit schedule and accumulates a $100,000 or more in federal tax liability on any day during the monthly deposit period, your company must pay the $100,000 or more federal tax liability the next business day AND your company automatically becomes a semiweekly schedule depositor on the next business day and remains so for the rest of the calendar year in addition to the following calendar year. See Example 3 below.
$100,000 Tax Liability Wiring Requirement (Effective January 12, 2024):
If a payroll meets all of the criteria outlined above:
- The Employer must send Check an immediate wire transfer of the full amount of the cash requirement of the payroll. Check will not disperse any funds to employees, contractors, or agencies until the wire is received. Once the wire transfer receipt is confirmed, Check will deposit the tax payment on the next business day.
- Please note that the late deposits are subject to IRS penalties and interest. The Employer is fully responsible for all penalties and interest resulting from delayed wire transfer tax liability funding to Check.
- An error message will be sent for payrolls attempting to be approved that meet all of the above criteria. Upon updating the payroll to be funded via wire, this error message will go away.
- Check will not process payroll for the Employer until the wire transfer of the full amount of the tax payroll liability is received.
How do I handle these tax liability wires?
Check has built the necessary logic to determine when, upon an approval attempt, a payroll meets all of the criteria outlined above. If this payroll's "funding_method" is set to ACH, an error message will be surfaced via the API that informs the user that the payroll may not be approved in this state. Once the payroll's "funding_method" is updated to wire, payroll approval will succeed.
There are two ways to fund a payroll via wire.
Recommended Approach: API Integration
The recommended approach is to build the ability for companies to change payrolls to being funded by wire into your payroll product. This is an implementation that should take no more than 2 weeks of an engineer’s time and the appropriate documentation can be found here.
By building this directly into your product, companies will be able to see the reason their payroll was unable to be approved, update the payroll to be funded by wire, and view the wire details all directly from your product. This will eliminate the amount of time your support operations team needs to interface with customers when this $100,000 federal tax liability threshold is breached and a payroll needs to be funded via wire.
Manual Approach: Console Support
If your team lacks the bandwidth to integrate with fund by wire, payrolls can be approved with a funding type of wire via Console. In this situation, it is recommended that an alert is built out within your observability platform to track the specific error message Check will send in response to a payroll approval failure resulting from a breach of the $100,000 federal tax liability threshold.
Once this alert surfaces, your support team will be able to go into Console, choose to fund the payroll via wire, and approve the payroll. At this point, the wire details will be exposed and these can be relayed to the company to wire for the aforementioned payroll’s cash requirement.
Appendix
Below are a few examples to illustrate how this Rule works:
Example 1
Fir Co. is a semiweekly scheduled depositor (Saturday-through-Tuesday deposit period). On Monday, Fir Co. accumulated federal taxes of $110,000, triggering the $100,000 Next-Day Deposit Rule. Fir Co. must deposit this amount on Tuesday, the next business day. Now that Fir Co. accumulated at least $100,000 in a deposit period, Fir Co. can stop accumulating at the end of that day (Monday) and begin to accumulate anew on the next day.
On Tuesday, Fir Co. accumulated additional federal tax liability of $30,000. Because the $30,000 tax liability accrued after over $100,000 in tax liability yesterday, this amount 1) isn't added to the previous $110,000, and 2) is less than $100,000. Therefore, Fir Co. must deposit the $30,000 by Friday (following the semiweekly deposit schedule).
Example 2
Pine Partners is a semiweekly schedule depositor that accumulated federal taxes of $95,000 on a
Tuesday (Saturday-through-Tuesday deposit period) and also accumulated taxes of $10,000 on Wednesday. In this situation, the $100,000 Next-Day Deposit Rule does not apply because the additional $10,000 accumulated in the next deposit period. Therefore, Pine Partners should pay their taxes according to their regular semiweekly deposit schedule. In this case, $95,000 must be deposited by Friday and $10,000 by the following Wednesday.
Example 3
Elm, Inc. is a brand new business and is considered a monthly schedule depositor. On Wednesday, May 4, it paid wages for the first time and accumulated a tax liability of $40,000. On Friday, May 6, Elm, Inc., paid wages again and accumulated a liability of $60,000, bringing its total accumulated tax liability to $100,000.
Three important events resulted on May 6:
- Elm, Inc. is required to deposit the $100,000 tax liability by Monday, May 9, the next business day; and
- Since Elm, Inc., accumulated a $100,000 liability on May 6, it automatically became a semiweekly schedule depositor on May 7; and
- Effective May 7, Elm Inc. will be a semiweekly schedule depositor for the remainder of 2022 and for 2023.
Example 4
Cedar Corp. has a semiweekly deposit schedule. On Friday, it paid wages and accumulated federal tax liability of $101,000, triggering the $100,000 Next-Day Deposit Rule. However, Monday is a federal holiday. The $101,000 deposit is due on Tuesday, the next business day.
Last updated on January 31, 2025