IRS Expands the Electronic Payment System and Drops Use of Paper Coupons

In response to the decision of the Financial Management Service to discontinue the system that processes federal tax deposit (FTD) coupons (form 8109), the IRS has issued final regulations that require the use of electronic funds transfer (EFT) for all federal tax deposits and eliminates the use of paper-based FTD coupons for all deposits and payments made after December 31, 2010. The IRS also provided transitional relief and stated that it wouldn’t impose Code Section 6556 penalties for FTD’s made in 2011 that would have been timely under the former rules.

All of the following are now required to be deposited via EFT:

1. FICA taxes and withheld income taxes;
2. Federal unemployment taxes;
3. Corporate income and estimated income taxes;
4. Unrelated business income taxes of tax-exempt organizations;
5. Private foundation excise taxes;
6. Estimate taxes on certain trusts;
7. Excise taxes reported on Form 720, Quarterly Federal Excise Tax Return;
8. Non-payroll taxes, including backup withholding;
9. Taxes withheld on nonresident aliens and foreign corporations; and
10. Railroad retirement taxes.

In response to concerns about the burden on small business from eliminating FTD coupons, the IRS stated: (a) the existing de minimis deposit rules, which allow taxpayers with tax liabilities under certain thresholds to make a payment with a return, remain unchanged; and (b) a telephonic debit option is available for taxpayers without a computer or internet access.

You must be enrolled in EFTPS to pay using either the Web site or the voice response system. All taxpayers that are currently using the FTD coupons were pre-enrolled in EFTPS. If you plan to use the voice response system, you will need your tax identification number and your Personal Identification Number (PIN). If you were recently pre-enrolled in EFTPS and cannot find your PIN, call 888-434-7338. Information on EFTPS, including how to enroll, can be found at www.eftps.gov.

For FTD’s made in 2011, the IRS won’t assert penalties under Code Section 6656 if the FTD’s would have been considered timely had statewide legal holidays been taken into account.