Simplifying Payroll Tax Deposit Rules

GAO discussed legislation that would simplify the payroll tax deposit system. GAO noted that: (1) since the current rules for depositing payroll taxes are complex and misleading, about one-third of employers are penalized annually for noncompliance; (2) both bills would simplify those rules by requiring large employers to deposit their payroll taxes on either the Tuesday or Friday following each payday, and allowing small employers to make deposits less often; (3) the bills would make it easier for employers to understand the deposit requirements and to comply with deposit rules; (4) even though the Senate bill would increase employers' exemption levels, it would have a positive effect on federal revenues because many employers would make their deposits faster under the Tuesday/Friday rule; (5) the Senate bill's shorter look-back provision would enable small employers to return to a slower deposit schedule more quickly, and achieve certainty in advance regarding applicable deposit rules during a given quarter; and (6) the Senate bill's higher exemption level would reduce the number of small employers that would be required to make deposits on Tuesday or Friday by over 1.4 million.