An Overview of IRS Electronic Payment Options

By Kristy Hurtt, CPA

With the e-filing of tax returns becoming more and more prevalent, practitioners and their clients should also take advantage of other electronic services that the IRS has introduced in recent years. These include the Electronic Federal Tax Payment System (EFTPS), electronic funds withdrawal, and payment by credit or debit card. This article discusses the requirements and advantages of these electronic services.

EFTPS

Practitioners know that e-filing tax returns has advantages: It documents the filing date, reduces time at the post office, and saves postage. For additional convenience, consider having business and individual clients enroll in the IRS’s free electronic payment program, known as EFTPS. EFTPS allows businesses and individuals to pay federal taxes via the internet or over the phone. It eliminates the hassles of writing checks and taking them to a financial institution or mailing payments to the IRS; payments are withdrawn directly from an enrolled bank account.

Other benefits include:

  • Tax payments can be made securely from home or office, 24 hours a day, 7 days a week.
  • Payments can be made from any place that has a phone or an internet connection.
  • Payments can be scheduled up to 120 days in advance for businesses and 365 days in advance for individuals, including estimated tax payments. Payments can be made daily, weekly, or monthly.
  • The IRS does not have access to the business’s or the individual’s account.
  • Scheduled payments can be canceled up to two business days in advance of the settlement date.
  • Up to 16 months of EFTPS payment history can be accessed online or by phone.
  • Every EFTPS transaction receives an immediate electronic funds transfer acknowledgment number that is a receipt of the transaction.
  • EFTPS uses the highest level of security available online.

The EFTPS option is available for the payment of tax due on individual returns, including Form 1040, U.S. Individual Income Tax Return, Form 1040-ES, Estimated Tax for Individuals, and Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return. It is available for the payment of tax due on business returns, including Form 1041, U.S. Income Tax Return for Estates and Trusts, Form 1120, U.S. Corporation Income Tax Return, Form 1120S, U.S. Income Tax Return for an S Corporation, and Form 7004, Application for Automatic Extension of Time to File Certain Business Income Tax, Information, and Other Returns. It can also be used to pay estate or gift taxes and to make installment payments (for taxpayers who have an IRS-approved installment agreement).

Taxpayers can enroll in the EFTPS at its website: www.eftps.gov/eftps. New businesses applying for employer identification numbers and indicating that they will have federal deposit obligations are automatically enrolled in EFTPS, but they must activate their enrollment.

Electronic Funds Withdrawal

Even if clients do not register for EFTPS, they can still make use of electronic withdrawal from their accounts for tax balances due with their e-filed business or individual tax returns, including estimated tax payments and extensions.

Some of the benefits of electronic funds withdrawal include:

  • It is a convenient payment option that allows taxpayers to e-file and e-pay their taxes in one step.
  • No unauthorized withdrawals will be made, and bank account information is safe and secure.
  • Forms 1040, 1120, 2350 (Application for Extension of Time to File U.S. Income Tax Return), 4868, 7004, and 990-PF (Return of Private Foundation or Section 4947(a)(1) Nonexempt Charitable Trust Treated as a Private Foundation) can be e-filed early and the electronic funds withdrawal scheduled for a later date.

This payment option is available through most tax preparation software. By providing the financial institution’s routing transit number and the account number for a checking or savings account, the taxpayer can have the withdrawal made on a scheduled withdrawal date. If the scheduled payment date is a weekend or a bank holiday, the payment will be withdrawn on the next business day.

The taxpayer can cancel scheduled payments up to 8:00 pm Eastern time two business days before the scheduled payment date. Of course, if a payment is canceled, the taxpayer will have to use another payment method.

The IRS does not charge a fee for payments by electronic funds withdrawal, but clients should check with their financial institution to see if it charges for electronic withdrawal or if such withdrawals are permitted.

Credit or Debit Card Payments

Taxpayers can make tax payments by debit or credit card with or without e-filing the tax return. The payment can be made at the time of e-filing over the telephone or online. Paying by credit card allows the taxpayer to pay the taxes now while paying the credit card company at a later date. Link2Gov Corporation and Official Payments Corporation are the two service providers the IRS uses to process the credit card payments. Taxpayers can use American Express, Discover, MasterCard, or VISA to make payments.

A confirmation number and an indication on the bill that the payment was made to the U.S. Treasury are further proofs of payment. Payments made by credit card generally cannot be canceled.

Caution: The service providers charge a convenience fee of 2.49% of the tax payment for credit card payments. For debit card payments, they charge a flat fee of $3.95. While the Taxpayer Relief Act of 1997, P.L. 105-34, prohibits the IRS from paying fees to the service providers for processing these transactions, the Service has authorized the third-party processing companies, through a nonmonetary agreement, to charge the fees.

EFTPS for the Tax Practitioner

The IRS is working to expand EFTPS capabilities to provide tax practitioners with more services through the internet. There are currently four ways for a practitioner to enjoy the benefits of EFTPS:

  • Practitioners can use EFTPS online to enroll and make payments for their company or clients. Payments are made one at a time, which allows the adviser to review and sort payment history, check payment status, and make enrollment information changes.
  • An automated voice response system is available for any taxpayer or provider who makes debit payments over the phone. Multiple payments can be made in a single phone call, and the service is available 24 hours a day, 7 days a week.
  • If a practitioner pays taxes for fewer than 1,000 clients, he or she may consider becoming an EFTPS batch provider. Up to 5,000 payments can be sent in one transmission. This software also provides the following amenities:
    • It provides e-mail notification about payments and enrollments;
    • It sends clients a taxpayer inquiry PIN so they can view their accounts online; and
    • It allows individual or multiple debits to a practitioner-maintained master account or to each client’s financial institution account.
  • Finally, the bulk provider program is designed for high-volume payroll processors making more than 1,000 payments per day.

EFTPS is becoming the preferred method of payment for businesses. Even practitioners who do not make payments on behalf of clients should consider EFTPS. Sole proprietors can enroll in EFTPS as a business or an individual.

More and more taxpayers are using electronic means to pay their taxes due to the number of available payment options. While each option has its pros and cons, depending upon the taxpayer’s or the practitioner’s needs, the options are safe and secure and give the taxpayer a streamlined way to pay taxes.


EditorNotes

Kristy Hurtt is a tax supervisor with Piccerelli, Gilstein & Company, LLP, in Providence, RI. For more information about this article, contact Ms. Hurtt at KristyH@pgco.com.

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