The shortfall rule allows an employer to deposit what percentage of their payroll tax liability without a penalty?

The shortfall rule permits an employer to deposit 98% of their payroll tax liability without incurring a penalty. This provision is in place to provide some flexibility to employers in managing their cash flow, which can be particularly useful if there are fluctuations in payroll or unexpected expenses.

By allowing employers to deposit a percentage that is less than the total liability, the shortfall rule recognizes that precise forecasting of payroll taxes can be challenging in practice. If an employer fulfills this requirement by depositing at least 98% of their tax liability, they are protected from penalties that may arise from underpayment.

Understanding this rule is crucial for employers to ensure compliance with tax regulations while also managing their financial responsibilities effectively. Hence, the option indicating 98% is the correct response as it aligns with the Internal Revenue Service guidelines regarding payroll tax deposits and offers a cushion for employers navigating their fiscal obligations.