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Simplify Taxes

The U.S. Department of the Treasury wants paper Federal Tax Deposit coupons to fall by the wayside.

by / January 3, 2006
The U.S. Department of the Treasury is trying to persuade taxpayers to switch from paper to the computer when paying federal taxes.

The Treasury Department wants taxpayers to stop using Federal Tax Deposit (FTD) coupons and switch to the Electronic Federal Tax Payment System (EFTPS), launching an education campaign -- called Simplify -- to promote the new payment system to tax preparers and small businesses.

Treasury Benefit
The motivation is straightforward: It's 53 cents cheaper for the Treasury to process an electronic payment than to process a paper coupon and paper check, said Gary Grippo, assistant commissioner of federal finance for the Treasury's Financial Management Service.

"We are talking about 120 million plus business tax payments in the United States each year," Grippo said, adding that the EFTPS also saves money by allowing the Treasury to collect revenue through its central IT system, instead of through the network of 10,000 banks that process the paper coupons for the government.

In fiscal 2005, the number of EFTPS payments processed rose 7 percent to 78 million, and the dollar volume increased 11 percent to $1.8 trillion compared with fiscal 2004, according to the Treasury. Also in fiscal year 2004, the EFTPS received more than $68 billion in payments, the highest amount in its nine-year history.

"IRS now receives more returns electronically than on paper. This breakthrough shows increased public interest in electronic interaction with the government," said Kevin Brown, commissioner of the IRS' Small Business/Self-Employed Division. "The Simplify campaign exemplifies a wider effort by the Treasury to serve an increasingly wired public through a variety of electronic filing and payment processes."

Who Uses It
More than 6 million users are enrolled in the EFTPS, most of which are businesses. The Treasury uses bulk interfaces compatible with 20 of the country's most common payroll processors, and tax preparers of all sizes are given "batch software" to transfer customer payments to the Treasury in bulk.

The department automatically enrolls businesses that request a book of FTD coupons for the year, sending back a note announcing they don't need the coupons and have been enrolled in the program -- they just need to activate the enrollment.

"Far too many tax preparers and small businesses still use paper coupons," said Donald Hammond, fiscal assistant secretary of the Treasury.

The Treasury processed roughly 42 million coupons in 2004, according to Grippo, who attributed the reason to businesses' reluctance to change financial habits, as well as frequent ignorance of the EFTPS among small tax preparers.

Grippo said accountants and tax preparers are prime targets for Simplify.

"Our research shows that just about any person who uses a tax preparer will do what they say," he said.

Most individual taxpayers using the EFTPS are either self-employed or have multiple sources of income on which they pay Form 1040 quarterly estimated taxes. Roughly 500,000 EFTPS users pay their quarterly estimated taxes this way, Grippo said.

A business or individual can enroll online or at a local IRS service center. When individuals enroll in the EFTPS via the Web, they wait roughly 15 business days to receive a system-issued personal identification number, adding a third piece of information to the personal password and user ID required to access the EFTPS online or over the telephone.

How You Pay
EFTPS users pay with a debit account using the system's telephone voice response system or its Web site.

Individuals use EFTPS-Direct, which allows them to make tax payments up to one day before the due date. Businesses utilizing their bank's tax payment transfer service use EFTPS-Through a Financial Institution and comply with their bank's deadlines.

Grippo said the EFTPS security system exceeds commercial best practices -- its automated validation edits and confirmations catch most typical errors that get miskeyed at banks and by Treasury personnel transcribing payment information from tax coupons and paper checks.

Users' transactions are processed overnight if paid by debit account, or on the date they specify if they choose to push a credit from their bank. The EFTPS has no debit service charge -- the program is free.

"When you are paying your taxes by mail, or with a paper coupon, there is always the possibility that it will not arrive to us, or information will not get to the IRS on time," Grippo said. "One of the key statistics about EFTPS is that a taxpayer is 31 times less likely to be assessed a penalty for error or late payment."

Simplify is evangelizing through several channels -- paid media advertisements, tax preparer associations and other professional organizations, conferences, direct mail and e-mail.

To enroll, visit the EFTPS Web site.

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Andy Opsahl

Andy Opsahl is a former staff writer and features editor for Government Technology magazine.

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