What CP136B means
CP136B tells an employer which federal tax deposit schedule to use for Form 941 next year. The IRS explains that your deposit requirements for next year may be different from last year's, and that it based the requirement on the total tax you reported on Form 944, Employer's Annual Federal Tax Return.
The IRM title explains the mechanics: Your Federal Tax Deposit Requirements for Form 941, figured using the second preceding calendar year Form 944 as the Form 941 lookback period. It goes to Form 941 filers who filed Form 944 in the current or prior year.
It is a courtesy notice. It does not assess anything. But using the wrong schedule is one of the fastest ways to rack up penalties a business never sees coming.
Why you got it
Small employers often file Form 944 annually. When a business moves to quarterly Form 941 filing, the IRS still needs a lookback figure to set the deposit schedule. CP136B uses the Form 944 liability for that purpose. IRM 20.1.4 says these deposit status notices go out each November, ahead of the new year.
Monthly or semiweekly
Treas. Reg. 31.6302-1 sets the rule. An employer is a monthly depositor for the entire calendar year if the total employment taxes reported for the lookback period were $50,000 or less. If they were more than $50,000, it is a semiweekly depositor.
The IRS's CP136B page translates that into deadlines:
- Monthly depositors deposit taxes on wages paid during a month by the 15th of the following month.
- Semiweekly depositors deposit taxes on wages paid Saturday, Sunday, Monday, or Tuesday by the following Friday, and taxes on wages paid Wednesday, Thursday, or Friday by the following Wednesday.
The deposit schedule is not a preference. It is set by your lookback number, and the penalty clock runs on it.
The $100,000 rule
There is an override. The IRS says that if you accumulate a tax liability of $100,000 or more on any day during a deposit period, you must deposit by the next business day. Once that happens, you immediately become a semiweekly depositor for the rest of the current year and the next year. Treas. Reg. 31.6302-1 says the same: a monthly depositor stops being one the day after it becomes subject to the one-day rule.
What to do now
- Check the number. Compare the liability on CP136B with your records for the original Form 944. The IRS says to use the original return's liability, not amended returns.
- If the notice shows zero, the IRS has no record of last year's Form 944. File it as soon as possible.
- If the figure differs from your records, IRS procedures say it is your responsibility to determine which deposit schedule to follow. Work it out under the regulation and Publication 15.
- Tell your payroll provider or bookkeeper the schedule before the first payroll of the new year.
- Set up electronic deposits if you have not already.
Reporting liabilities on Form 941
The IRS's answer to a common question: you do not show your payments on Form 941. The IRS already has a record of them. You show only your tax liabilities. Monthly depositors enter the tax for each month on Part 2 of Form 941. Semiweekly depositors use Schedule B (Form 941), Report of Tax Liability for Semiweekly Schedule Depositors, entering the tax for each date employees were paid.
Get that schedule wrong and the IRS may not be able to match your deposits to your liabilities, which is how penalties get calculated on deposits you actually made on time.
When you can pay with the return
The IRS says deposits generally must be made electronically, with exceptions. If your tax liability for the quarter is less than $2,500, you can pay with the Form 941 payment voucher. The IRS also describes an exception where the prior period's tax was less than $2,500 and you did not incur a $100,000 next-day liability. Read Publication 15 for the current rules before relying on either exception.
What a mistake costs
IRC 6656 imposes the failure to deposit penalty unless the failure was due to reasonable cause and not willful neglect. The penalty is 2 percent if the deposit is no more than 5 days late, 5 percent if it is 6 to 15 days late, and 10 percent if it is more than 15 days late. It rises to 15 percent if the tax is still not deposited within 10 days after the first IRS delinquency notice, or on the day the IRS demands immediate payment. A deposit made on the wrong schedule can be late even when the money was there.
The IRS's First Time Abate policy can provide relief from the failure to deposit penalty for employers who qualify, and reasonable cause relief is available in the statute. Neither is a plan.
A note for growing businesses
Businesses usually move from Form 944 to Form 941 because payroll grew. Growth is also what pushes an employer past the $50,000 lookback figure into semiweekly deposits, or into the $100,000 next-day rule during a big payroll week like a bonus run. Before the year starts, look at your expected payroll calendar. If one payroll could cross $100,000 in accumulated liability, plan the cash and the next-day deposit in advance.
Also check your payroll provider's settings. Providers deposit on the schedule you tell them, and if that setting is wrong, the penalty notice comes to you, not to them.
What not to do
Do not keep depositing on last year's schedule out of habit.
Do not include amended returns in your lookback figure.
Do not ignore a zero on the notice. It means the IRS is missing a return.
The law behind CP136B
Treas. Reg. 31.6302-1 sets the monthly and semiweekly deposit rules, the lookback period, and the one-day rule. IRC 6656 imposes the failure to deposit penalty. IRM 21.3.1.7.11 describes CP136B, and IRM 20.1.4 explains that these deposit status notices go out each November and that employers should validate them. Publication 15 is the employer's guide.
If you are behind on deposits or unsure which schedule applies, call us at (813) 229-7100.