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Tax Deposits / Agency Checks

Overview

The Tax Deposits file tracks all tax payments made from the beginning of the year to the present. ProPay automatically updates this file each time the program generates a tax check or electronic tax payment. This file is critical for determining paid and due taxes throughout the year.

Accessing Tax Deposits

From the Main Payroll menu, click Taxes to access tax-related functions.

List/Update Tax Deposits File

This screen lists all tax payments made from the beginning of the year to the present. Deletions or changes to this file are password protected (optional).

Important: The Tax Deposits file is automatically updated each time the program generates a tax check or electronic tax payment. In most instances, there is no need to make manual entries or adjustments.

Tax Payment File Management

Automatic Updates

The Tax Deposits file is automatically updated when:

  • Employee paychecks are printed and tax payments are due
  • Electronic tax payments (EFTPS) are generated
  • Tax impounds are processed through ACH
  • Year-end tax adjustments are created

When to Manually Update

Manual entries may be necessary when:

  • Setting up a new client - Enter any tax payments already made for the current quarter
  • Correcting errors - If a tax payment was issued incorrectly
  • Recording external payments - When client pays taxes directly without using ProPay

Caution About Manual Changes

Do not delete or change tax payments unless absolutely necessary. The tax file is used by the program to determine what taxes are paid and what taxes are due. Exercise great caution when modifying this file.

Types of Tax Payment Entries

Paper Checks

Each time the program prints employee checks, it evaluates the employer's tax liability to determine whether taxes must be paid.

Example: If an employer is on "Monthly Tax Deposit Frequency," the program generates a tax check on the last scheduled pay date of the month.

Key Features:

  • Due date is written on the check stub
  • Due date appears on the Employer's Payroll Summary report
  • Client is responsible for depositing taxes by the due date shown

EFTPS Tax Payments

For employers using Electronic Federal Tax Payment System (EFTPS):

  1. Each time employee checks are printed, the program evaluates tax liability
  2. If payment is due (e.g., employer on "Semi-Weekly Tax Deposit Frequency"), an electronic payment is generated
  3. Payments are placed in a batch file with payments from other clients
  4. At day's end, all tax payments can be transmitted in one batch to EFTPS
  5. Settlement date is pre-set so EFTPS holds the payment until the due date
  6. Client must have funds available by the due date, regardless of transmission timing

ACH Tax Impounds or Tax Payments

For Payroll Processors using ACH-CREDIT method:

  • Tax Impounds are created each time employee checks are printed
  • When taxes are due, Tax Payments are created as ACH credits
  • Funds are held in the Payroll Processor's escrow account
  • Payments are disbursed to government agencies when due

Adding or Editing Tax Entries

When to Add Manual Entries

New Client Setup: You must manually enter any tax payments already made by the client for the current quarter.

Correcting Errors: If a tax payment was erroneously made, you may need to edit it, delete it, and re-enter it.

Key Fields and Their Significance

Adjustment or Credit Entry If this box is checked:

  • The amount reduces the tax liability
  • The amount is not included in the total to be deducted from the client's checkbook as shown on the Payroll Summary Report

Tax Amount Paid by Processor This amount indicates a tax payment was made from the Payroll Processor's bank account.

  • Effect: Taken into account when computing Accrued Impounds owed by the Employer to the Payroll Processor
  • If zero: Indicates payment was made from Employer's bank account directly to the government agency, and is deducted when computing Accrued Impounds

Amount Impounded by Processor This amount indicates funds were impounded by the Payroll Processor and deposited into the escrow account.

  • Effect: Deducted when computing the Impounds Balance due by the Employer to the Payroll Processor

Tax Deposit Frequency

Tax deposit frequency determines when tax payments are generated. Set in Employer Setup for each client.

Federal Tax Deposit Schedules

Monthly Depositor

  • Tax payments due by the 15th of the following month
  • For employers with less than $50,000 in annual tax liability

Semi-Weekly Depositor

  • Payments due Wednesday for Saturday, Sunday, Monday paydays
  • Payments due Friday for Tuesday, Wednesday, Thursday, Friday paydays
  • For employers with $50,000 or more in annual tax liability

Quarterly Depositor

  • Rare for federal taxes
  • Typically only for very small employers

Next-Day Depositor

  • Required if accumulated tax liability reaches $100,000
  • Must deposit by the next banking day

State Tax Deposit Schedules

State deposit frequencies vary by state and employer:

  • Most states: Quarterly or monthly
  • Some states: Semi-weekly or next-day for large employers
  • Check state requirements in Employer Setup

Viewing Tax Liability and Payments

Tax Liability Screen

From Main Payroll Menu, click Taxes to display:

Accrued Total tax liability for the selected quarter, calculated by summing all employee detail records with dates within the quarter.

Paid Sum of all tax payments within the quarter.

Balance Difference between Accrued liability and Paid taxes.

Tax Types Displayed:

  • 941 - Federal withholding and FICA
  • STWT - State withholding tax
  • 940 - Federal unemployment (FUTA)
  • SUI - State unemployment insurance
  • LOCAL - Local taxes (if applicable)

Accessing Prior Quarter Data

The Tax Liability screen displays data for the current quarter only.

To view prior quarter information:

  1. Exit and re-enter the program under a pay date within the desired quarter:
    • Q1: 03/31/[year]
    • Q2: 06/30/[year]
    • Q3: 09/30/[year]
    • Q4: 12/31/[year]

    Re-printing Tax Checks or Regenerating Electronic Payments

    If you need to re-print a tax check or regenerate an electronic tax payment:

    1. Delete the payment from the Tax file and/or Electronic Tax File
    2. Go to Paychecks > Print Checks for "Selected" employees under the same pay date as the deleted payment
    3. Do not select any employees, just click Continue
    4. The program will prompt you to print Tax checks

    This process forces ProPay to regenerate the tax payment without printing employee paychecks.

    Tax Impounds (for Payroll Processors)

    What Are Tax Impounds?

    Tax impounds are funds collected by the Payroll Processor from the employer and deposited into an escrow account owned by the Payroll Processor. These funds are eventually disbursed to various government agencies for tax payments.

    When Tax Impounds Are Created

    If the ACH-CREDIT method is used:

    • ProPay impounds all taxes accrued, regardless of due date
    • This may include SUI and FUTA taxes normally due at a later date
    • The impound amount may be greater than current tax payments
    • The Tax Liability screen may show a Tax Balance Due even though taxes have been impounded

    Accrued Impounds

    Amount owed to the Payroll Processor by the Employer.

    Formula: _CODE_BLOCK_0_

    Paid Impounds

    Funds collected by the Payroll Processor from the employer and deposited into the escrow account.

    Impounds Balance Due

    Difference between Accrued Impounds and Paid Impounds.

    Note: ProPay generates tax payments when they become due at a later date, so at the end of each quarter the Balance due for all taxes should be zero.

    Important Notes on Tax Payments

    Quarterly Calculation Method

    Tax Payments: ProPay generates a tax payment for an amount equal to the Accrued Liability for the current quarter less any tax payments already made in the same quarter.

    Result: Tax payments may not necessarily match the liability of the current pay date because ProPay always sums up the entire quarter to determine the amount due.

    Impact of Manual Adjustments: If you make any manual entries or deletions to a prior pay date or to the Tax Payments file after tax payments have been generated, this will result in either an overpayment or underpayment for that pay date.

    Tax Impounds Calculation

    Tax Impounds: ProPay generates Tax Impounds equal to the Accrued Impounds less Paid Impounds in the same quarter.

    Result: Tax Impounds may not necessarily match the liability of the current pay date since ProPay always sums up the entire quarter to determine the amount due.

    Impact of Changes: Any changes made to prior pay dates will also affect the Tax Impound amount for the next pay date.

    Pre-Check Review

    Before printing paychecks, go to the Tax Liability screen.

    The last row shows:

    • Taxes due by tax type: 941, STWT, 940, SUI, LOCAL
    • Any tax payments generated with check printing will equal these amounts
    • Any Impounds generated will equal the Impounds balance due

    For exact matching: To have Tax Payments or Tax Impounds equal a specific pay date's liability, you must start with zero balances on the Tax Liability screen.

    Fractions of Cents

    The Challenge

    By nature, it is impossible to match liabilities with tax payments of several pay dates when gross wages are multiplied by 3-4 decimal SUI and FICA rates.

    How ProPay Handles It

    ProPay adjusts the difference each time a payment is generated by adding a penny or two if needed to the FICA liability.

    However, when multiple pay dates are combined, the combined summary reports may still be off by fractions of cents.

    Accounting Treatment: Accountants may treat this the same way as they would normally treat line 7a of Form 941.

    Impound Amount Adjustments

    Each pay date, ProPay adjusts the amount to be impounded for taxes up to 99 cents per pay date to match the current pay date tax liability. In some cases this may not be possible since the program needs to balance out the entire quarter.

    Tax Payment Methods Comparison

    Method Generated When Transmitted When Funds Available By
    Paper Check During payroll check printing Client mails check Due date on check
    EFTPS During payroll check printing Batch transmitted daily Settlement date
    ACH Impound During payroll check printing As scheduled by processor Settlement date

    Troubleshooting

    Issue: Tax Payment Amount Doesn't Match Expected

    Solution:

    1. Remember ProPay calculates based on entire quarter, not just current pay date
    2. Check for prior manual adjustments or deletions
    3. Review Tax Liability screen before processing payroll
    4. Verify tax deposit frequency is set correctly
    5. Check for fractions of cents adjustments

    Issue: Tax Check Printed Incorrectly

    Solution:

    1. Delete the incorrect entry from the Tax Deposits file
    2. If check was printed, void it in your check register
    3. Regenerate the payment using Print Checks for Selected Employees
    4. Do not select any employees, just continue
    5. Answer "Yes" when prompted to print tax checks

    Issue: Duplicate Tax Payment

    Solution:

    1. Review Tax Deposits file for duplicate entries
    2. Delete the duplicate entry (password may be required)
    3. Check Tax Liability screen to verify balance
    4. If payment was already submitted, contact the tax agency about credit

    Issue: Missing Tax Payment

    Solution:

    1. Verify tax deposit frequency is set correctly in Employer Setup
    2. Check Tax Liability screen to confirm balance due
    3. Ensure tax payment method is configured (paper, EFTPS, or ACH)
    4. Review Tax Deposits file for the quarter
    5. Manually add entry if payment was made outside ProPay

    Password Protection

    The Tax Deposits file can be password protected to prevent unauthorized changes.

    To enable password protection:

    1. Configure in System Setup
    2. Set user permissions
    3. Require password for deletions or edits

    Best Practice: Enable password protection to maintain the integrity of tax records and ensure proper audit trails.

    Reports for Tax Deposits

    Payroll Summary Report

    Shows:

    • Tax payments generated during payroll processing
    • Due dates for each payment
    • Total amount to be deducted from client's account

    Tax Liability Report

    Shows:

    • Accrued liability by tax type
    • Paid amounts
    • Balance due
    • Breakdown by quarter

    Tax Deposits Listing

    Shows:

    • Chronological list of all tax payments
    • Payment dates and due dates
    • Payment method (check, EFTPS, ACH)
    • Tax type and amount

    Additional Resources

    • IRS Publication 15 (Circular E) - Employer's Tax Guide
    • IRS Publication 966 - Electronic Federal Tax Payment System Guide
    • State-specific tax deposit requirements
    • Employer Setup configuration guide

    Related Topics

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