Running a small business can be overwhelming while trying to stay on top of everything. Whether employers prepare and submit payroll taxes themselves or if they hire a payroll service provider to do it on their behalf, one way to relieve some of that pressure is by taking advantage of the IRS’ Electronic Federal Tax Payment System (EFTPS) to help manage tax obligations, such as tax withholding, reporting and making tax deposits.

U.S. Department of Treasury regulations require employment tax deposits be made electronically, which is why employers are encouraged to ensure their third-party payer use the EFTPS to remain compliant.

EFTPS, offered for free by the U.S. Department of Treasury, allows employers to make and verify federal tax payments electronically 24 hours a day, seven days a week online or by phone. Employers can enroll online at EFTPS.gov or by calling 800-555-4477 for an enrollment form.

The IRS recommends employers do not change their address of record to that of the payroll service provider as it may limit the employer’s ability to be informed of tax matters.

How Does It Work?

The EFTPS website breaks down how the system processes the two types of payments:

• ACH Debit (Authorize a transaction yourself)
• ACH Credit (Have your Financial Institution initiate your transaction)

For ACH debits, the taxpayer initiates the tax payment by asking EFTPS to originate a debit entry to the taxpayer’s bank account and crediting the Treasury. The taxpayer supplies the tax payment information to EFTPS at least one day prior to the due date. EFTPS validates reported data in accordance with IRS instructions and provides the taxpayer with an acknowledgment number. EFTPS provides the tax payment details electronically to IRS.

On the day before the tax payment date, EFTPS originates an ACH debit file for the tax payments to settle the next day. The EFTPS ACH debit file is automatically transmitted by Bank of America to the FedACH system. FRB Atlanta is responsible for settling the funds in addition to recording and reporting ACH collections and deposits processed by EFTPS.

For ACH credits, the taxpayer requests its bank to originate an ACH credit (crediting the Treasury and debiting the taxpayer’s bank account) at least one day in advance of the tax due date. The taxpayer’s bank delivers the ACH credit file entries to the FRB ACH Operator by 2:15 a.m. ET on the tax due date to initiate the ACH credit. The FedACH file, with the taxpayer detail, is transmitted electronically to EFTPS. EFTPS verifies the taxpayer transaction detail, assigns a reference number to the transaction in its own records and reports this number to IRS. FRB Atlanta is responsible for settling the funds in addition to recording and reporting ACH collections and deposits processed by EFTPS.

With the adoption of new payments system industry rules, same-day ACH capability (settlement on the day the transaction is received or originated) became an additional option to existing next-day settlement for ACH credits received and ACH debits originated through EFTPS.

Inquiry PIN
Third parties making tax payments on behalf of an employer generally will enroll their clients in the EFTPS under their account, which allows them to make deposits using the employer’s Employer Identification Number (EIN).

When third parties do this, it may generate an EFTPS Inquiry PIN for the employer. Once activated, this PIN allows employers to monitor and ensure the third party is making all required tax payments. Employers who have not been issued Inquiry PINs and who do not have their own EFTPS enrollment should register on the EFTPS system to get their own PIN and use this PIN to periodically verify payments. A red flag should go up the first time a service provider misses or makes a late payment.

Employers enrolled in EFTPS can make up any missed tax payments and keep making tax payments if they change payroll service providers in the future. They can also update their information to receive email notifications about their account’s activities. Access to this feature requires a PIN and password for the system.

Once they opt-in for email notifications, they’ll receive notifications about payments they submit including those made by their payroll service provider. Email notification messages show:

• Payments scheduled
• Payment cancellation
• Return of payments
• Reminders of scheduled payments

Employers who believe a bill or notice received is a result of a problem with their payroll service provider should contact the IRS as soon as possible by calling or writing to the IRS office that sent the bill, calling 800-829-4933 or making an appointment to visit a local IRS office.

If an employer suspects their payroll service provider of improper or fraudulent activities involving the deposit of their federal taxes or the filing of their returns, they can file a complaint with the Return Preparer Office using Form 14157, Complaint: Tax Return Preparer. A check-box on Form 14157 allows the employer to select “Payroll Service Provider” as the subject of the complaint. Once received, Form 14157 complaints will receive expedited handling and investigation.

Do you need help managing tax responsibilities in your business? Our tax team is ready to help!

About Ericksen Krentel

Ericksen Krentel CPAs and Consultants, founded in New Orleans, Louisiana in 1960 with offices in New Orleans and Mandeville, believes that serving as the clients’ most trusted adviser is grounded in going beyond the numbers.

That includes helping clients achieve their business and personal financial goals by providing innovative and exceptional services in the following areas: audit and assurance services, tax compliance and planning, outsourced CFO services and business valuations for a variety of industries; employee benefit plan audits; fraud and forensic accounting; business planning; IT consulting; loss calculations; and estate planning.

Learn more at www.ericksenkrentel.com.

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