Mandatory Electronic Filing of FTDs—This is a Good Thing

Today’s edition comes from guest blogger, Vickie, Lambert, CPP:

Effective January 1, 2011, the IRS adopted the Financial Management Service (FMS) decision to discontinue the system of processing federal tax deposit coupons. In other words, the IRS is no longer allowing businesses to make employment tax deposits with PAPER coupons. For this move I say to the IRS—BRAVO! I applaud the IRS for moving forward in using 21st century technology.

But not everyone felt this way when the IRS first announced this planned moved. In the guidelines for this new requirement the IRS explained why the decision was made and addressed the various arguments for moving in this direction.

Three main arguments were offered against this new procedure.

1. Placed an undue burden on small businesses. In this day and age most businesses have computers. And since the IRS offers their Electronic Federal Tax Payment System (EFTPS) for free to all businesses this argument really was not well founded. But even if a business does not have an internet accessible computer it does have a phone line. Again since the IRS offers their ACH deposit method which only requires the use of a phone line to schedule a payment through EFTPS this argument fell flat. To take it one step further to ensure access, the IRS increased their support service for this deposit method to 24/7 year-round.
2. Will increase errors in deposits therefore increase the need for the IRS to respond to requests for penalty abatements thus negating any cost savings to the IRS. This argument was not supported by the IRS’s statistics. In fact, their statistics show that businesses that make their FTDs electronically have significantly lower error rates than paper coupon filers.
3. Why not just continue offering the paper coupon option? What is the drawback to having both? The IRS determined that more and more financial institutions are no longer accepting the coupons so continuing their use simply keeps an archaic system going for no purpose. If they were left as an option it would negate the decision to cease processing them even though they are no longer being used.

The one major change to this new regulatory requirement that will put some burden on former paper files for the short term is the change in the definition of legal holidays. Prior to this change a legal holiday included state-wide holidays since local financial institutions would be closed. Now the definition of legal holiday is consistent with all other returns.

So for once I can actually say good job IRS for modifying and upgrading regulations to keep in line with modern technology and for doing away with old and outdated methods.

Vicki M. Lambert, CPP
www.thepayrolladvisor.com

Relief For Small Employers

An IRS news release today reminds small employers of an alternate form available to reduce the burden of quarterly payroll tax filing.  It is called Form 944. If you have less than $1000 of annual employment tax liability, you can file this form.  For the rest of employers, Form 941 is required.  This is a newly updated and extended form that must be filed quarterly for companies that are too big for Form 944.  The record keeping requirements are much more onerous.

The problem has been a lack of education on the part of the IRS regarding who can actually file Form 944.  Even more confusion surrounds anyone who wishes instead to stick with the 941.  To have less than $1000 of annual liability, you would need to have taxable payroll of less than $6535.94.  This is an extremely small business who is likely not going to be keeping up with the latest IRS rules.  The IRS must notify the employer that they are eligible for the annual form.  Unless notification occurs, they again are stuck with the 941 anyway.  Why confuse the issue?

I propose completely doing away with the 944 and keeping everyone on the same reporting form.  It is really no easier to complete the 944. It is simply completed once per year instead of 4 times per year.  If there are questions from small businesses relating to payroll procedures, they need to seek out assistance to stay in compliance with employment tax rules.  By adding another form and relying on the IRS to notify employers in a timely manner that they qualify for the annual form, the government is nearly keeping anyone from using it anyway.

Form 944 is yet another reason why employers should be utilizing the services of a professional company for processing of payroll.  Whether this be a small local/regional provider, or the employer’s CPA, it is much too difficult to keep track of regulation changes and obscure tax nuances.  After all, unless you are in the payroll business, it is much more important to stay current with issues and customer needs surrounding your own business.