Failure to deposit: payroll's lateness tiers

Payroll deposits are graded on a curve that steepens fast — 2% to 15% of each deposit. Here's the tier math, the cascade trap, and the deposit-designation move most employers never use.

2/5/10/15% tiersDeposit designation trickFTA-eligibleProvider failure = reasonable cause

Tiers that punish delay, not size

IRC 6656 grades each late payroll deposit by how late it was: 2% within five days, 5% within fifteen, 10% beyond that, 15% after a demand notice goes unanswered. A single semiweekly deposit that slips a week costs 5% of the whole deposit — which is why the penalty shows up on CP161/CP210 notices in amounts that startle owners who were "only a few days behind."

Containing it

Fix the deposit schedule first

Late because the schedule changed? Lookback-period shifts from monthly to semiweekly catch growing employers constantly — verify which schedule the current quarter requires.

Use EFTPS scheduling

Deposits scheduled in advance don't miss; same-day wires exist for the near-misses.

Designate deposits after a notice

Within 90 days, direct payments to the newest liability to stop the cascade.

Then request abatement

FTA for a clean account; reasonable cause (bank failure, disaster, provider collapse) with documentation otherwise.

Where it bites

The cascade — default ordering applies deposits oldest-first, so one miss makes every later deposit 'late' too.
Payroll provider failure is your problem — outsourcing doesn't shift the duty — but a provider's collapse is classic reasonable cause, and there's specific relief for victims of provider fraud.
941 filing late is a different penalty — the return itself late = failure-to-file on the 941; deposits late = 6656. They stack.
Repeat quarters lose FTA — the waiver spends on one quarter; systemic lateness needs the schedule fixed, not letters.

Related penalty guides

Trust fund recovery penaltyWhen late deposits become personal liability CP161 noticeThe business balance-due notice where FTD appears 1099 penaltiesThe other January employer-compliance meter First-time penalty abatementThe near-automatic removal — check eligibility in 60 seconds Form 843, line by lineThe request form: instructions, where to send it, free letter drafter All IRS penaltiesThe full penalty map, with a relief path for each

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Frequently asked questions

How is the failure to deposit penalty calculated?

By lateness tiers on each deposit: 2% (1–5 days late), 5% (6–15 days), 10% (more than 15 days), and 15% if still unpaid ten days after the IRS demands it. It applies to payroll deposit schedules — monthly or semiweekly — not to the quarterly 941 filing itself.

Can I tell the IRS which deposit a payment covers?

Yes — within 90 days of a penalty notice you can designate how deposits apply, which often shrinks cascading penalties (by default the IRS applies deposits to the oldest liability first, letting one missed deposit ripple forward).

Does first-time abatement apply to deposit penalties?

Yes — failure to deposit is one of the three FTA-eligible penalties (with failure to file and failure to pay). A clean 3-year history on the 941 account gets one quarter's penalty removed on request.

What about the trust fund recovery penalty?

Different animal entirely: FTD penalizes the business for late deposits; the TFRP makes individuals personally liable for withheld taxes that never arrived at all. If withholdings are being spent instead of deposited, that's the page to read next.

Related IRS notices

IRS CP518Final Notice — Unfiled Return IRS Letter 106CClaim Partially Disallowed IRS CP2100Payee TIN Mismatch — B Notice IRS Letter 12CInformation Missing From Your Return All IRS noticesEvery notice explained, with deadlines Remove IRS penaltiesFirst-time abatement & reasonable cause (Form 843)