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

Where Do I Put The Money?

Q. I’m a new employer and have started withholding taxes from my workers checks.  Where do I put the money?

A. Definitely don’t put it under your mattress!  Publication 15 from the IRS is what I like to call the Employer’s Tax Bible. Every employer whether new or seasoned should look through that document each year.  Within its pages, you will see a schedule of how often you must remit the taxes you withhold from employee checks to the IRS.  The section that relates to your question is chapter 11 “Depositing Taxes”.  The frequency depends on the total amount of tax liability you report.  Certain employers can remit their totals with their quarterly 941.  Certain employers must make a deposit monthly.  Still others get semi-weekly treatment.  The largest employers have a next-day obligation for deposits. You can make your deposits using the EFTPS system, or take a paper coupon and check to the bank. If you are using a payroll service, they can likely handle the deposits for you.

All money withheld from employee checks must remain in trust once it comes out.  The employee is relying on you to put their tax payments into an account and pay it for them.  Then, once per year when they file their taxes, those payments will count toward their tax liability.  Many employers recently have been convicted of not paying these taxes and instead running with them or spending them on business or personal expenses.  You don’t what to join that crowd.  Here is a link of some of the cases where employers didn’t pay over the money they withheld.

FICA and Medicare Tax Payments

Q. Where do I send FICA, Medicare, taxes?

A. If you are an employer, FICA, Medicare and Federal withholding taxes should be deposited according to the schedule assigned by the IRS to your company. Very small employers can deposit and report these withholding amounts on Form 944 annually. The other deposit requirements are Monthly, Semi-weekly and Daily depending on the amount of the deposit. All of this is discussed in Publication 15 in section 11, “Depositing Taxes.”

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