To avoid penalties, what must an employer do regarding tax payments?

To avoid penalties, an employer must make timely deposits according to their classification. This is crucial because the Internal Revenue Service (IRS) has established specific guidelines and schedules for payroll tax deposits, which vary based on the employer's tax liability. Employers are categorized into different classifications, such as monthly or semi-weekly depositors, and must adhere to these timelines to ensure compliance with federal tax obligations.

Failure to deposit taxes on time can result in significant penalties, including interest charges and additional fines, which can accumulate quickly. Timely deposits help maintain proper cash flow and adherence to legal requirements, thereby protecting the employer from financial ramifications.

In contrast, reporting taxes only at year-end could lead to missed deadlines for payments, which would expose the employer to penalties; depositing taxes whenever convenient would not align with IRS regulations; and paying double amounts when underpaid is not a standard requirement and may not effectively resolve the issue of underpayment.