Proposal Ends FTD Coupon Payments in January

9/2/2010

By Mark Corey, CPA

The Department of the Treasury, Internal Revenue Service, has published proposed regulations that would essentially phase out the ability of taxpayers to make Federal tax deposits using the traditional paper coupon. The proposed rules, REG-153340-09, would require anyone still using the FTD coupons to use the Electronic Funds Transfer method to pay their federal taxes. The proposed rules are expected to be finalized and in place for all payments due on January 1, 2011, and after.

Currently, if you are required to make federal tax deposits in excess of $200,000 annually you must generally use the EFT method to pay those taxes. The Treasury Department currently uses the Electronic Federal Tax Payment System to process electronic tax deposits.

The following types of taxes must be paid by EFT under the proposed regulations:

• Corporate income and corporate estimated taxes (§1.6302-1)
  
• Unrelated business income taxes of tax exempt organizations under section 511 (§1.6302-1)
  
• Private foundation excise taxes under section 4940 (§1.6302-1)
  
• Taxes withheld on non-resident aliens and foreign corporations (§1.6302-2)
  
• Estimated taxes on certain trusts (§1.6302-3)
  
• FICA taxes and withheld income taxes (§31.6302-1)
  
• Railroad retirement taxes (§31.6302-2)
  
• Non-payroll taxes, including backup withholding (§31.6302-4)
  
• Federal Unemployment Tax Act (FUTA) taxes (§31.6302(c)-3)
  
• Excise taxes reported on form 720, Quarterly Federal Excise Tax Return (§40.6302(c)-1)

The determination of a depositor’s status as either a monthly or semi-weekly depositor for employment taxes is not affected by these proposed regulations. In additional, the existing rules on whether a taxpayer can remit taxes with a return in lieu of making an FTD remain unchanged by this proposed regulation. An example cited in the proposed regulation states that FICA taxes must be paid by EFT unless the existing de minimis rule under §31.6302-T(f)(4) applies. An employer with a deposit liability of less than $2,500 for a return is allowed to remit employment taxes with their quarterly or annual return under the de minimis rules for employment taxes. If employers are below the $2,500 threshold, they can pay the employment taxes with their tax return, may voluntarily make deposits by EFT, or may use other methods of payment as provided by the instructions relating to the return.

The bottom line is, unless there is an allowable existing exception, expect to pay any federal tax deposit by EFT after January 1, 2011. The Treasury Department appears to be keeping with their general initiative to increase the frequency of electronic transactions between the government and taxpayers in an effort to save money and streamline the tax system.