Oct 22nd 2010
Companies currently making their federal payroll tax deposits by taking them directly to an authorized bank will no longer be able to use paper coupon as of January 1, 2011.
Rules permitting federal tax deposits with paper coupons are being eliminated, and the U.S. Treasury Department is ceasing to maintain the coupon system. Instead, companies will need to make deposits online or by telephone. If firms choose to make online deposits, they must enroll in the Electronic Federal Tax Payment System (EFTPS).
It's all part of the federal government's initiative to increase the number of electronic transactions made by taxpayers. The IRS states that the paper coupon system that allows payments at 8,000 authorized financial institutions "dates back to World War I." Eliminating paper coupons is estimated to save at least $65 million over the first five years.
The IRS states the primary exception to the new deposit rule is for employers that:
- Have a payroll tax liability of $2,500 or less for a return period; and
- Pay their tax liability when they file their quarterly or annual employment tax returns (Forms 941 or 944).
Employers who qualify for this exception can still choose to make their payroll tax deposits by EFT or can use other methods.
Information on EFTPS, including how to enroll, can be found at www.eftps.gov or by calling EFTPS Customer Service at (800) 555-4477.
After enrollment, employers can make or schedule payments by logging onto EFTPS. They receive immediate acknowledgment of transactions. Plus, taxpayers can schedule payments up to 120 days in advance of desired transaction dates. This change is expected to reduce payment-related errors that could result in penalties.
These changes do not alter existing rules governing a depositor's status. That is, a monthly or semi-weekly depositor will retain that status for purposes of remitting employment tax.
According to the IRS, EFTPS uses the highest level of Internet security available. When payments are made, the user is required to enter three pieces of unique information:
- Taxpayer Identification Number;
- Personal Identification Number; and
- Internet Password.
After January 1, 2011, businesses must use EFTPS to pay all business taxes, including corporate income and estimated, excise, and federal employment taxes. Also required to be remitted electronically will be unrelated business income taxes of tax-exempt organizations, private foundation excise taxes, taxes withheld on nonresident aliens and foreign corporations, and estimated taxes on certain trusts.
This article originally appeared on BizActions.com.