Common missteps in deposit timing, worker classification, and quarterly filings — and how to avoid them.
Published July 2026 · General information, not personalized tax advice — see note below.
Withheld income tax, Social Security, and Medicare aren't yours to hold onto — the IRS expects them deposited on a schedule based on your total payroll tax liability, which can be monthly or semi-weekly depending on your business's size. Missing a deposit deadline, even by a day, can trigger a penalty that scales with how late the deposit is. This is one of the most common — and most avoidable — payroll mistakes, especially for businesses that process payroll themselves without a fixed deposit calendar.
Paying someone as a 1099 contractor when the IRS would consider them a W-2 employee (based on how much control you exercise over their work, schedule, and tools) doesn't just create a payroll problem later — it can mean back taxes, penalties, and interest once discovered, sometimes going back multiple years. If you're unsure how a worker should be classified, it's worth a real review rather than a guess.
Federal and Maryland withholding both depend on the employee's filing status, allowances or dependents claimed, and current-year tax tables. Using outdated tables, or not updating an employee's withholding after they submit a new W-4, leads to under- or over-withholding that surfaces at tax time — for them, and sometimes as a compliance issue for you.
Beyond depositing the tax itself, employers generally need to file a quarterly federal payroll tax return (Form 941) reporting wages paid and taxes withheld, plus corresponding Maryland filings. A missed or late filing can draw its own penalty separate from any deposit issue — even if the tax itself was paid on time.
If the IRS or Maryland Comptroller ever questions a filing, your records — pay stubs, timesheets, W-4s, deposit confirmations — are what resolve it quickly instead of turning into a drawn-out back-and-forth. Sloppy or missing records don't cause a penalty by themselves, but they make every other mistake on this list much harder and more expensive to fix.
Almost every payroll penalty we've helped a client work through traces back to the same root cause: payroll being run without a fixed schedule, checklist, or second set of eyes. None of these mistakes require complex tax knowledge to avoid — they require consistency, which is exactly what outsourcing payroll processing is meant to solve.
A note on this article: this is general information for Maryland small businesses, not tax, legal, or accounting advice for your specific situation. Worker classification rules and payroll tax deposit/filing requirements are set by the IRS and the State of Maryland and can change — always confirm current requirements at IRS.gov or marylandtaxes.gov, or talk with our team about your situation before acting on it.