IRS Penalty Guide
Failure to Deposit Penalty (FTD)
IRC §6656
This guide explains the Failure to Deposit Penalty (FTD), how the IRS calculates it, and what relief options are available — including First Time Abate and reasonable cause.
Penalty Rate
2% (1-5 days late), 5% (6-15 days late), 10% (16+ days late), up to 15% if not paid within 10 days of the first IRS notice
Maximum: 15% of the unpaid deposit (the top tier)
First Time Abate Eligible
The Failure to Deposit Penalty (FTD) is eligible for First Time Abate (FTA) relief under IRM 20.1.1.3.3.2.1. Taxpayers with no penalties in the prior 3 tax years may qualify for full penalty removal.
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Relief Options for This Penalty
First Time Abate (FTA)
Most CommonReasonable Cause
Deposit-availability / designation correction (where deposits were misapplied)
How This Penalty Is Calculated
Example Calculation
An employer is 8 days late depositing $20,000 of Form 941 employment taxes. The 6-15 day tier applies: $20,000 × 5% = $1,000 penalty. If the same deposit were 20 days late, the 10% tier would apply: $20,000 × 10% = $2,000.
Most taxpayers facing the Failure to Deposit Penalty (FTD) qualify for at least one relief program. Upload your notice to see which options apply to your specific situation.
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“Our payroll provider transitioned systems and one semiweekly deposit went in three days late. The 2% penalty was small, but we still got it removed under first-time abate since our record was clean.”
— Columbus, OH
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Frequently Asked Questions
How is the failure to deposit penalty calculated?
The penalty is tiered by lateness: 2% for deposits 1-5 days late, 5% for 6-15 days late, and 10% for deposits more than 15 days late. It rises to 15% for amounts still unpaid more than 10 days after the IRS issues its first notice, or on the day the IRS demands immediate payment.
Which taxes does the failure to deposit penalty apply to?
It applies to required federal tax deposits, most commonly employment taxes reported on Form 941 (income tax withholding plus Social Security and Medicare) and Form 940 (FUTA), as well as certain excise tax deposits. Deposits must generally be made electronically through EFTPS.
Is the failure to deposit penalty eligible for First Time Abate?
Yes. Failure to deposit is one of only three penalties covered by First Time Abate, along with failure to file and failure to pay. An employer with a clean 3-year compliance history that has filed all returns and paid or arranged to pay the tax may qualify for removal of the FTD penalty — except that First Time Abate generally does not apply to the portion of an FTD penalty attributable to not depositing electronically through EFTPS.
Facing the Failure to Deposit Penalty (FTD)? Check your eligibility for relief.
Why did I get a deposit penalty when I paid the full amount?
The penalty applies to timing and method, not just the total. Depositing late, skipping the EFTPS electronic-deposit requirement, or following the wrong deposit schedule (monthly vs. semiweekly) can each trigger the penalty even if the full liability is eventually paid.
Can I tell the IRS which period to apply my deposit to?
Yes. The IRS applies deposits to the most recent liability within a return period by default, which can cascade penalties forward. Employers generally have a limited window after a penalty notice to request that a deposit be applied to a specific liability period, which can reduce the penalty.
What is reasonable cause for a deposit penalty?
Reasonable cause requires showing the failure was due to circumstances beyond your control despite ordinary business care and prudence — for example, a bank or payroll-provider error, a natural disaster, or the inability to access funds. Documentation of the cause and corrective action supports the request.
How do I avoid future deposit penalties?
Confirm your deposit schedule (monthly or semiweekly) each year based on your lookback-period liability, enroll in and use EFTPS, and schedule deposits in advance of the deadline. Reconciling deposits against each Form 941 quarter helps catch errors before the IRS does.
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