IRS Reference Number 1502 appears on a notice when the IRS finds that the employment taxes you reported on Form 941 (or Form 944 for the smallest employers) don’t match the deposits it has on record through EFTPS. In plain terms, the liability on your quarterly return and the payments logged in the Electronic Federal Tax Payment System don’t line up, either in amount, in timing, or in both. You resolve it by working out which record is wrong, then either amending the return or sending the IRS documentation that proves your deposits were correct all along.
Ignoring the notice is the expensive option. Unresolved deposit shortfalls trigger failure-to-deposit penalties that scale up to 15 percent, and in serious cases the IRS can pursue individual owners and officers personally for the unpaid trust fund portion.
What the Notice Is Actually Flagging
Employment taxes cover three things: Social Security tax, Medicare tax, and federal income tax withheld from employee paychecks.1Internal Revenue Service. Understanding Employment Taxes You report them quarterly on Form 941 and deposit them through EFTPS on a schedule tied to your total liability.2Internal Revenue Service. About Form 941, Employer’s Quarterly Federal Tax Return Reference Number 1502 shows up when the IRS system compares Line 12 of your Form 941 against the deposits credited to your account and finds a gap.3Internal Revenue Service. Form 941 – Employer’s Quarterly Federal Tax Return
The mismatch is usually one of two things. It might be a timing problem, where the deposit schedule on the return doesn’t match when deposits actually arrived; a monthly depositor who accidentally followed a semiweekly rhythm is a common example. Or it’s a straight amount problem, where the total deposited for the quarter falls short of, or exceeds, the total reported.
Working Out Where the Error Is
Before you correct anything, put three records side by side. Skipping this step usually means fixing the wrong thing.
Pull your filed Form 941 first. Line 12 shows total taxes after adjustments and nonrefundable credits.3Internal Revenue Service. Form 941 – Employer’s Quarterly Federal Tax Return If you filed a Schedule B, pull that too, since it shows the daily liability breakdown the IRS uses to match deposits.
Then pull your internal payroll ledger. Walk pay date by pay date through the quarter and recalculate the liability that accrued on each one. Compare those numbers to what you reported. Bonuses, retroactive pay changes, and mid-quarter adjustments are frequent sources of quiet errors.
Finally, log in to EFTPS and pull the deposit history. The system holds up to 15 months of payments.4Internal Revenue Service. EFTPS: The Electronic Federal Tax Payment System Match every deposit date and amount against the Schedule B entries. A common culprit is a deposit that got applied to the wrong quarter, or a payment credited to the wrong tax type inside EFTPS.
How to Respond
Where the error lives determines what you send.
If the Return Was Wrong
If your reconciliation shows the original Form 941 overstated or understated the liability, file Form 941-X to correct it.5Internal Revenue Service. Instructions for Form 941-X The adjusted return replaces the incorrect figures. Form 941-X goes to the service center for your location, not to the address on the discrepancy notice.6Internal Revenue Service. Where to File Your Taxes (for Form 941-X)
If the Return Was Right
If your return and deposits actually reconcile and you believe the IRS made the error, respond to the notice with documentation. Send a letter explaining why you dispute the notice, along with copies of your records.7Internal Revenue Service. Got a Letter or Notice from the IRS? Here Are the Next Steps Include EFTPS payment confirmations, your Schedule B worksheet, and a written explanation tying the reported liability to the deposits. Mail everything to the contact address printed on the notice, and write the notice number on every page so it gets routed correctly.
Either way, respond by the date on the notice. Silence lets penalties and interest keep compounding.
What the Penalties Look Like
Failure-to-deposit penalties under 26 U.S.C. ยง 6656 climb the longer the deposit stays outstanding:8Office of the Law Revision Counsel. 26 USC 6656 – Failure to Make Deposit of Taxes
- 1 to 5 days late: 2 percent of the underpayment.
- 6 to 15 days late: 5 percent.
- More than 15 days late: 10 percent.
- Still unpaid 10 days after the first delinquency notice: 15 percent.
The penalty applies to each missed or short deposit, calculated on the amount that should have been deposited. Interest runs on top. For the first half of 2026, the underpayment rate is 7 percent in the first quarter and 6 percent in the second, and rates reset every three months.9Internal Revenue Service. Quarterly Interest Rates
Getting a Penalty Reduced or Removed
Two paths generally work.
First Time Abate
If your compliance record is clean, the IRS may waive the failure-to-deposit penalty under First Time Abate. You need to have filed the same return type for the three tax years before the penalty year, had no penalties during those three years (or had any earlier penalties removed for a reason other than First Time Abate), and have fewer than four prior deposit penalty waivers in the preceding three years.10Internal Revenue Service. Administrative Penalty Relief Check this route first, since it doesn’t require proving a disaster or emergency.
Reasonable Cause
If First Time Abate doesn’t fit, you can ask for relief on reasonable cause grounds. The IRS looks at each case on its own facts and wants to see that you used ordinary care and prudence but still couldn’t deposit on time.11Internal Revenue Service. Penalty Relief for Reasonable Cause Accepted reasons include fires or natural disasters, inability to access records, serious illness or death of the taxpayer or an immediate family member, and system issues that prevented a timely electronic payment.
Some arguments rarely succeed. Being short on cash is not, by itself, reasonable cause. Relying on a payroll provider or tax professional who failed to deposit doesn’t automatically excuse the employer either, because the IRS treats the employer as ultimately responsible.11Internal Revenue Service. Penalty Relief for Reasonable Cause
When It Becomes Personal: The Trust Fund Recovery Penalty
Social Security, Medicare, and withheld income tax are trust fund taxes, held by the employer in trust for the government. If a business can’t pay them, the IRS can assess the Trust Fund Recovery Penalty against individuals who were responsible for collecting or paying those taxes and willfully failed to do so.12Internal Revenue Service. Employment Taxes and the Trust Fund Recovery Penalty (TFRP)
A “responsible person” is anyone with authority to decide which bills get paid: typically corporate officers, directors, shareholders with control over funds, partners, and certain employees who exercise independent judgment over the company’s finances. An employee who processed payments under someone else’s direction generally isn’t responsible.12Internal Revenue Service. Employment Taxes and the Trust Fund Recovery Penalty (TFRP)
“Willfully” doesn’t require bad intent. It’s willful if you knew about the outstanding taxes and paid other creditors first, even planning to catch up later. Covering rent or vendors while the IRS goes unpaid is the classic example. The penalty equals 100 percent of the unpaid trust fund taxes, and the IRS can assess it against more than one individual for the same liability.12Internal Revenue Service. Employment Taxes and the Trust Fund Recovery Penalty (TFRP)
If you receive a letter proposing this penalty, you have 60 days to appeal, or 75 days if the letter is addressed outside the United States.12Internal Revenue Service. Employment Taxes and the Trust Fund Recovery Penalty (TFRP)
If the Correction Leaves You Owing Money
If the discrepancy resolves into additional tax owed and you can’t pay in full, the IRS offers installment agreements for businesses. Apply through your IRS online account, by phone, or by mailing Form 9465.13Internal Revenue Service. Payment Plans; Installment Agreements Interest and penalties keep accruing on the unpaid balance during the plan, so anything you can pay up front lowers the total cost. Note one boundary: businesses can’t use the online short-term payment plan option, which is limited to individual taxpayers.