Failure to Deposit Penalty

Full Definition

The Failure to Deposit Penalty applies to employers that do not make employment tax deposits on time, in the right amount, or in the right way. The IRS states employer-paid taxes include federal income tax, Social Security and Medicare taxes, and Federal Unemployment Tax, and that deposits go to the IRS on a monthly or semi-weekly schedule.

The penalty is a percentage of the taxes not deposited correctly, calculated on the number of calendar days the deposit is late, starting from its due date:

1 to 5 calendar days late — 2% of the unpaid deposit. 6 to 15 calendar days — 5%. More than 15 calendar days — 10%. More than 10 calendar days after the date of a first notice or letter, or the day you get a notice or letter demanding immediate payment — 15%.

The IRS states plainly that these do not accumulate: "The penalty amounts don't add up. For example, if your deposit is more than 15 calendar days late, we don't add a 10% penalty to the earlier 2% and 5% late penalties. Instead, in this example, your new total penalty would be 10%."

This penalty IS covered by administrative relief. The IRS lists the failure-to-deposit penalty under IRC 6656 among the penalties eligible for First Time Abate and for the Automatic Exemption from Penalty replacing it — with an extra condition for businesses: the IRS must not have waived the failure-to-deposit penalty four or more times in the prior three years or twelve consecutive quarters, and the penalty must not have been charged for EFTPS avoidance.

Sources

• Failure to Deposit Penalty — Internal Revenue Service, retrieved 2026-08-21
• Administrative penalty relief (First Time Abate) — Internal Revenue Service, retrieved 2026-08-20

Last reviewed 2026-08-21 by Tax Resolution Clarity editorial.