If you haven’t done so already, now is the time to sign up for the Electronic Federal Tax Payment System (EFTPS). The IRS recently announced proposed regulations that will discontinue the use of paper coupons and mandate that Federal tax deposits such as payroll tax payments be paid electronically effective January 1, 2011.  This means that businesses who currently submit their 941 and 940 tax payments using a paper coupon will no longer be able to do so after December 31, 2010.

What Federal Taxes Will Require Electronic Deposits?
Employers with a quarterly Federal deposit liability of more than $2,500 will be required to remit their Federal tax payments electronically.  Since the paper coupon payment system will be shut down at the end of this year, employers with a tax liability of less than $2,500 in a quarter can pay their employment taxes with their quarterly or annual return.

The proposed IRS regulations will mandate that the following tax deposits be sent via EFTPS: 

  • FICA taxes and withheld income taxes
  • Federal Unemployment Tax Act (FUTA) taxes
  • Nonpayroll taxes, including backup withholding
  • Taxes withheld on nonresident aliens and foreign corporations
  • Railroad retirement taxes
  • Corporate income and corporate estimated taxes
  • Unrelated business income taxes of tax-exempt organizations
  • Private foundation excise taxes
  • Estimated taxes on certain trusts
  • Excise taxes reported on Form 720, Quarterly Federal Excise Tax Return

Benefits of the Electronic Federal Tax Payment System (EFTPS)
According to the IRS, using the Electronic Federal Tax Payment System (EFTPS) to make Federal tax deposits provides substantial benefits to both taxpayers and the government.  EFTPS is:

  • Secure… Three unique pieces of authentication are required, providing the highest level of security online
  • Fast… Tax payments can be made in minutes
  • Accurate… Verification steps along the way give you the ability to check and review your information before it is sent, helping to significantly reduce the risk of payment-related errors that could result in a penalty
  • Convenient… EFTPS is available by Internet or phone – 24 hours a day, 7 days a week
  • Easy-to-Use… A step-by-step process tells you what information you need to make any Federal tax payment
  • Flexible... Business users can schedule payments up to 120 days in advance

Additional Information on How to Enroll and Make Payments Using EFTPS
The IRS provides additional guides, tool kits and publications on enrolling in EFTPS, how it works and making tax payments.  These include:

Publication 4132, which explains the process of enrolling and paying via the Internet
Publication 966, The Secure Way to Pay Your Federal Taxes for Businesses and Individuals
Publication 4169, Tax Professional Guide to the Electronic Federal Tax Payment System
Publication 4320, EFTPS Tool Kit, which contains PDF(s) and descriptions of EFTPS educational materials and their intended target audience, and is for use by tax professionals and financial institutions to assist in educating their clients on the benefits of EFTPS
Publication 4275, EFTPS Express Enrollment for New Businesses
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