I. BACKGROUND
Effective July 1, 1997, an estimated 1.2 million taxpayers will be required to make electronic deposit of taxes. These taxpayers, along with those who already make electronic deposit of taxes, will ultimately need to switch to the new IRS Electronic Federal Tax Payment System (EFTPS). The new EFTPS will alter the manner and timing of all federal tax deposits of businesses required to use the system, and failure to comply will carry substantial penalties.
The new system for deposit of federal taxes resulted from passage in 1993 of the North American Free Trade Agreement Implementation Act (NAFTA), which mandated the implementation of an electronic funds transfer system for the collection of depository taxes, including FICA, income tax withholding, estimated tax payments and excise taxes.
II. THRESHOLDS AND TIMING
The temporary Treasury regulation requires businesses that exceeded $50,000 in combined FICA and federal income tax withholding in 1995 to use the EFTPS for all depository taxes, beginning July 1, 1997. Taxpayers who are not otherwise required to make electronic deposits of taxes may voluntarily participate in the EFTPS. The size of an employer’s payroll tax liability determines the date the employer is required to remit payroll taxes electronically. If you did not make payroll tax deposits but did make other tax deposits exceeding $50,000 in 1995 or 1996, you must begin depositing these taxes electronically on January 1, 1998. Beginning January 1, 1999, businesses that deposit more than $20,000 in taxes during 1997, must begin to use the system. Once a business enrolls in the electronic system, it must continue to file electronically even if its taxes drop below the threshold. If you are one of the businesses required to begin depositing electronically by July 1, 1997, you should have already received an enrollment form requesting information and asking you to make certain decisions regarding how the new requirement will be implemented in your business.
To determine if the requirement applies to you, consult the table below.
If you collected this amount of payroll taxes
During this period
The new requirements apply to you on:
$50,000
Calendar year 1995
July 1, 1997
Calendar year 1996
January 1, 1998
$20,000
Calendar year 1997
January 1, 1999
III. ENROLLMENT
The EFTPS will use two designated Treasury Financial Agents (TFAs) to process tax payments. The TFAs are First Chicago/Mercantile Services in the “northern region” and NationsBank in the “southern region.” Nebraska is considered to be in the “northern region.” Covered taxpayers must enroll with the TFA for their designated region prior to participating in the system. The EFTPS Customer Service Center telephone number to request an enrollment form is: First Chicago/Mercantile Services 1-800-945-8400.
Taxpayers will be entitled to choose one of two deposit methods at the time of enrollment: Automated Clearing House (ACH) debits or ACH credits. Taxpayers choosing the ACH debit method will be able to enter EFTPS payment information by telephone or computer, after which the taxpayers will receive a confirmation number. Taxpayers choosing the ACH credit method will need the services of a financial institution to provide the necessary deposit information and to initiate the transaction. Financial institutions may decline to offer ACH credit services or may charge a fee for the service.
IV. PENALTIES
Taxpayers required to participate in the EFTPS may be subject to penalties for failure to comply. Every business required to deposit taxes electronically, which continues to make the deposit using the Federal Tax Deposit Coupon, will be subject to a 10 percent penalty on the amount required to be deposited. Even though the taxes are deposited, any taxpayer failing to deposit in the proper manner will be subject to the failure to deposit penalty.