Electronic payroll tax deposits

I recently read an article stating that, under the Taxpayer Relief Act of 1997, all doctors would have to electronically transmit payroll tax deposits to the IRS, beginning July 1, 1998. As I understand the law, this is only required if you have over $3,500 a month or $50,000 a year of payroll taxes. If you are under those amounts, to my knowledge, you still can send or deposit the taxes in the traditional manner. Is this correct?

Charles Blair, DDS

John McGill, MBA, CPA, JD

I recently read an article stating that, under the Taxpayer Relief Act of 1997, all doctors would have to electronically transmit payroll tax deposits to the IRS, beginning July 1, 1998. As I understand the law, this is only required if you have over $3,500 a month or $50,000 a year of payroll taxes. If you are under those amounts, to my knowledge, you still can send or deposit the taxes in the traditional manner. Is this correct?

The Internal Revenue Service previously issued Treasury Regulation 31.6302-1, which requires that any taxpayer who deposited more than $50,000 in payroll and withholding taxes in 1995 must begin electronically depositing by January 1, 1997.

The Small Business Job Protection Act of 1996 postponed the required compliance date to July 1, 1997. The required compliance date again was postponed to July 1, 1998 and now has been postponed to January 1, 1999.

Your understanding of the law is correct. If you have not deposited more than $50,000 in payroll and withholding taxes in 1995 and 1996, you are not required to deposit these funds electronically. Currently, if your required payroll and withholding deposit is less than $500 per quarter, the taxes can be mailed in with Form 941. If the payroll and withholding taxes are $500 or more, the taxes must be deposited using Form 8109 at an authorized financial institution.

Your deposit schedule for a calendar year is determined from the total taxes reported on your Form 941 in the four-quarter look-back period ending June 30 of the previous tax year.

If you reported $50,000 or less of taxes during the look-back period, you are required to make monthly deposits by the 15th day of the following month.

If you reported more than $50,000 of taxes during the look-back period, you are a semi-weekly depositor and must deposit taxes on payments made on Wednesday, Thursday, and/or Friday by the following Wednesday.

Taxes accumulated on payments made on Saturday, Sunday, Monday, and/or Tuesday are required to be deposited by the following Friday.

Notwithstanding the foregoing, when a taxpayer accumulates a tax liability of $100,000 or more on any day during a deposit period, the deposit has to be made by the next banking day.

I was considering establishing an education IRA for the benefit of each of my three children and funding it with the maximum annual contribution of $500. Unfortunately, I found out that my income is over the applicable limit. Is there any way I still can accomplish this?

Under the new tax law, non-deductible contributions of up to $500 annually may be made to these accounts while the earnings grow on a tax-deferred basis. They can be withdrawn tax-free if used for certain types of educational expenses.

The new law does contain an income limit for doctors wishing to take advantage of this benefit, however. Married doctors whose adjusted gross income exceeds $150,000 are ineligible to take full advantage of an education IRA, along with single doctors who report more than $95,000 of adjusted gross income.

There is a loophole. Under the law, individuals other than parents may establish and fund an education IRA. A grandparent, aunt, uncle, friend, etc., could establish and fund an education IRA for your child`s benefit if he or she qualifies, even though you do not individually qualify.

So, yes, it still may be possible for your child to benefit from an education IRA.

Dr. Blair is a nationally known consultant and lecturer. McGill is a tax attorney and MBA. They are the editors of the Blair/McGill Advisory, a monthly newsletter helping dentists to maximize profitability, slash taxes and protect assets. The newsletter ($149 a year) and consulting information are available from Blair/McGill and Company, 4601 Charlotte Park Drive, Suite 230, Charlotte, NC 28217 or call (704) 523-5882.

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