When Deposits Are Required

A deposit required for any period occurring in 1 calendar year must be made separately from a deposit for any period occurring in another calendar year. A deposit of this tax must be made separately from a deposit of any other type of tax, but you need not identify whether the deposit is of tax withheld under chapter 3 or 4.

The amount of tax you are required to withhold determines the frequency of your deposits. For more information, see Deposit Requirements in the Instructions for Form 1042 .

60 Publication 515 (2026)

Escrow in lieu of deposit. Under certain circumstances, a withholding agent may be permitted to set aside a withheld amount in escrow rather than depositing the tax. A participating FFI that withholds tax on a withholdable payment not otherwise subject to chapter 3 withholding or backup withholding under section 3406 made to a recalcitrant account holder of a dormant account may, in lieu of depositing the tax withheld, set aside the amount withheld in escrow until the date that the account ceases to be a dormant account. In such case, the tax withheld becomes due 90 days following the date that the account ceases to be a dormant account if the account holder does not provide the required documentation, or becomes refundable to the account holder if the account holder provides documentation establishing that withholding does not apply.

A withholding agent that withholds tax under chapter 3 on certain payments that include an undetermined amount of income may retain 30% of the payment to hold in escrow in accordance with Regulations section 1.1441-3(d). Similarly, if a withholding agent is unable to determine whether the payment is a withholdable payment because the source or character of the payment is unknown, the withholding agent may retain 30% of the payment to hold in escrow for chapter 4 purposes in accordance with Regulations section 1.1471-2(a)(5).

Electronic deposit requirement. You must deposit all withheld taxes under chapter 3 or 4 by electronic funds transfer. Electronic funds transfers can be made using the Electronic Federal Tax Payment System (EFTPS) or IRS Direct Pay. If you do not want to use EFTPS or IRS Direct Pay, you can arrange for your tax professional, FI, or other trusted third party to make deposits on your behalf. You may also arrange for your FI to initiate a same-day wire payment on your behalf. EFTPS and IRS Direct Pay are free services provided by the Department of the Treasury and the IRS, respectively. Services provided by your tax professional, FI, or other third party may have a fee.

For more information about EFTPS or to enroll in EFTPS, go to EFTPS.gov or call 800-555-4477. For additional information about EFTPS, see Pub. 966, Electronic Federal Tax Payment System, A Guide To Getting Started. For more information about IRS Direct Pay, go to IRS.gov/ DirectPay .

Note: All payments should be stated in U.S. dollars and should be made in U.S. dollars.

Tip: Qualified business taxpayers that request an EIN will automatically be enrolled in EFTPS. They will receive information on how to activate their account.

Penalty for failure to make deposits on time. If you fail to make a required deposit within the time prescribed, a penalty is imposed on the underpayment (the excess of the required deposit over any actual timely deposit for a period). You can avoid the penalty if you can show that the failure to deposit was for reasonable cause and not because of willful neglect. Also, the IRS may waive the penalty if certain requirements are met.

Depositing on time. For deposits made by EFTPS to be on time, you must initiate the deposit by 8 p.m. Eastern time the day before the date the deposit is due. If you use a third party to make deposits on your behalf, they may have different cutoff times.

Penalty rate. If the deposit is:

• 1 to 5 days late, the penalty is 2% of the underpayment;

• 6 to 15 days late, the penalty is 5%; or

• 16 or more days late, the penalty is 10%.

However, if the deposit is not made within 10 days after the IRS issues the first notice demanding payment, the penalty is 15%.

If you owe a penalty for failing to deposit tax for more than one deposit period, and you make a deposit, your deposit is applied to the most recent period to which the deposit relates unless you designate the deposit period or periods to which your deposit is to be applied. You can make this designation only during a 90-day period that begins on the date of the penalty notice. The notice contains instructions on how to make this designation.