FAQ

The Electronic Federal Tax Payment System, or EFTPS, provides an electronic system for paying federal taxes. The Internal Revenue Service (IRS) has been replacing the current system of processing taxes in compliance with Congressional mandates. Through EFTPS, the IRS expects to expedite the availability of funds and investment decision-making information to the U.S. Treasury while providing flexible payment options to the business taxpayer.

The effort to overhaul the current system began in 1992 with the implementation of the TAXLINK system. TAXLINK operated as a prototype to test various features that could be utilized in EFTPS, the final nationwide system - which began implementation in 1995.

In order to offset decreased revenues resulting from the North American Free Trade Act (NAFTA), Congress mandated the electronic collection of federal depository taxes.

Prior to 1995, all taxpayers were required to deposit these taxes - federal insurance (FICA), federal unemployment (FUTA), withheld income, railroad retirement, corporate income, and various federal excise taxes - with an authorized depository institution or Federal Reserve Bank on tax due date.

This could be accomplished by using federal tax deposit paper coupons or magnetic media. The depository institution was then given one banking day to transfer the funds to the Treasury's account.

The electronic mandate now requires that those funds be applied to the Treasury account on tax due date, thereby accelerating the government's use of the funds by one day.

Internal Revenue Service (IRS) regulations, issued in 1994, mandate use of Electronic Funds Transfers (EFTs) for Federal Tax Deposits (FTDs) and require business taxpayers within specified thresholds to begin paying their FTDs electronically.

Once you meet the mandated employment tax or other depository tax threshold for the Electronic Federal Tax Payment System (EFTPS), all federal business tax payments must be made electronically, even if your deposit activity falls below the threshold in future periods.

All federal employment and other depository tax payments must be made using the Electronic Federal Tax Payment System (EFTPS):

• Quarterly Federal Excise Tax (Form 720)
• Employer's Annual Federal Unemployment Tax (Form 940)
• Employer's Quarterly Federal Tax (Form 941)
• Employer's Annual Tax Return for Agricultural Employees (Form 943)
• Annual Return of Withheld Federal Income Tax (Form 945)
• U.S. Corporation Income Tax (Form 1120)
• Farmer's Cooperative Association Income Tax (Form 990C)
• Employer's Annual Railroad Retirement and Unemployment (Form CT-1)
• Return of Private Foundation (Form 990PF)
• Exempt Organization Business Income Tax (Form 990T)
• Annual Withholding Tax Return for U.S. Source Income of Foreign Persons (Form 1042)

The Internal Revenue Service (IRS) will notify you. A letter will be sent to your address of record on file with the IRS. Since this address is most likely not that of the payroll department, you should take steps to ensure that the proper personnel receive this IRS notification. This is especially important since business taxpayers who reach mandated status are responsible for using the Electronic Federal Tax Payment System (EFTPS) - even if they do not receive IRS notification.

Once mandated, you must continue to use the electronic system - even if your tax liability falls below a mandated threshold. In fact, effective with your July 1, 1999 tax liabilities, you will be subject to substantial penalties (10%) by the Internal Revenue Service (IRS) on any payment that is not made in compliance with the Electronic Federal Tax Payment System (EFTPS).

Employers who are mandated to make federal deposits via EFTPS will be assessed a 10% avoidance penalty for non-compliance.

If your company makes its own tax deposits, the Internal Revenue Service (IRS) offers you two options: Automated Clearing House (ACH) debit and ACH credit. When the deadline for ACH debit or ACH credit is missed, FEDWIRE, when allowed, can be used for same-day deposits.

Before using the ACH methods, you must first enroll with the IRS. Companies utilizing multiple Employer Identification Numbers (EINs) will need to enroll each one individually. Depending on your geographic location, one of two Internal Revenue Service designated financial institutions will handle your enrollment and money transfer process. You will receive an enrollment form at the same time you receive your mandated status notification. Depending on the taxpayer's banking arrangements, there may be a fee associated with ACH processing. Fees for use of FEDWIRE will also vary.

* ACH Debit. For ACH debit, you will be asked to provide business and bank account information and select one of the following input methods:
1. Personal computer
2. Audio Response
3. Voice Response

You will be provided with a PIN number for use each time you enter the system to make a payment. In order for the ACH system to receive the transaction and debit the bank account on the tax due date, you must initiate your payment by 8:00 p.m., Eastern Time (ET), one business day prior to the due date. You will receive a confirmation number after the entry of each ACH debit. You will also be asked if you would like to establish upper limits for your payments.

* ACH Credit. If you select ACH credit, you must initiate your payment one day prior to your tax payment due date. You must confirm cut-off times and associated fees with your financial institution.

There is no mechanism to provide a confirmation number when using ACH credit since the credit is self-initiated as opposed to the debit, which is system generated. You will receive a PIN number upon enrollment in order to query the Internal Revenue Service (IRS) system and obtain confirmation that the IRS has received and processed an ACH credit. Unlike the ACH debit, the PIN is not used when making an ACH credit payment.

* FEDWIRE. Unlike ACH credit and debit, which require initiation one day prior to tax due date, FEDWIRE allows enrolled employers to use a same-day payment method. This method is currently limited to taxpayers that are enrolled to use the Electronic Federal Tax Payment System (EFTPS).

In order to use FEDWIRE, you must contact your financial institution and provide it with the necessary tax and bank account information before initiating a transaction.

Yes, but it must be noted on the enrollment form that you want to use both payment methods. The start-up procedures are different for the ACH debit and ACH credit methods of payment.