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What is EFTPS & How is it Beneficial to Businesses?

Payroll
Article
10/11/2019

The Electronic Federal Tax Payment System is a free service provided by the U.S. Treasury that can be used to pay federal taxes due to the IRS. It is a simple and convenient way for small and medium-sized businesses to pay their income, payroll, and other federal taxes. EFTPS can be used by providers of payroll services and other authorized third parties to make payments on behalf of these businesses.

Who uses it, and why?

EFTPS is used by more than 12 million individuals and businesses each year to pay federal taxes. The government says it has already processed trillions of dollars in tax payments. There's no cost to a taxpayer, and using this online payment system offers many benefits, making it an attractive way of interacting with the IRS.

Corporations are required to use electronic funds transfers to make all their federal tax deposits (such as deposits of employment, excise, and corporate income tax). Businesses can also choose to pay other taxes electronically. For example, a corporation must deposit its quarterly estimated income tax payments via an electronic funds transfer regardless of whether it chooses to pay the final income tax liability in this manner. EFTPS is the easiest way to do this.

Benefits of EFTPS

Using EFTPS offers numerous benefits. You can:

  • Pay taxes online from your home or office. You can log on to EFTPS.gov and pay from any location with internet access.
  • Use a secure government system. The government has taken pains to ensure that EFTPS is secure. This means going through a three-step authentication process, which entails using a PIN issued to you by the government, an 18-digit enrollment number, and your self-created password.
  • Initiate payments at any time. Because EFTPS is always open, you can make a tax payment 24/7.
  • Schedule payments ahead of time. You can make a payment up to 365 days in advance.
  • Get notified after you pay. When you make a payment, you receive an immediate email that it went through. You can also opt to receive the notification by mail.
  • Keep track of your payment history. When you make a payment, you have the option of printing out the acknowledgment of receipt. But you can also check online to see your payment history from as far back as 16 months, or you can do this by calling EFTPS customer service. If you authorize a third party to make your tax payments, you can check your payment history using an Inquiry PIN provided to you by EFTPS.
  • Make accurate payments. When you make a payment, the amount of funds specified are removed from your bank account on a date you've chosen. The government doesn't remove any additional amounts from your account to satisfy outstanding taxes; it doesn't have unlimited access to your bank account or even know what's there.
  • Pay all your federal taxes in one place. One of the greatest benefits of EFTPS is that it enables you to pay any federal taxes due. This includes income, employment, estimated, and excise taxes.

Drawbacks of EFTPS

A potential drawback to using the system is the registration process, which can take up to five days. And keep in mind that using EFTPS doesn't alleviate the issue of businesses having to figure the correct amount to pay. You may want to opt for professional tax services to make sure your payroll tax responsibilities are met accurately and on time.

Reasons to use EFTPS vs. Direct Pay

EFTPS offers many advantages over another free online payment option: the IRS' Direct Pay. One big difference between EFTPS and Direct Pay is that the former can be used to pay any type of federal tax, while the latter is limited to taxes owed by individuals (such as income taxes and estimated taxes). Direct Pay can't be used for business tax payments.

However, Direct Pay enables you to make an immediate tax payment; there's no enrollment or registration required. As mentioned, EFTPS enrollment can take up to five days, but once it's done, you don't have to re-enroll or take any further steps. Here are some other benefits of EFTPS vs. Direct Pay:

1. EFTPS saves your taxpayer information

Once you've enrolled in EFTPS, your information (such as your bank account number and routing number) resides there so you can make payments at any time by logging in with your PIN and password. Direct Pay doesn't save your personal information, which must be reentered every time you use it. Your personal information is used only to verify your identity and apply your payment to your tax record.

2. You can schedule your payments in advance

EFTPS lets you schedule payments in advance for up to one year. So, if you're traveling or just busy doing day-to-day activities, your tax payments will be made on time, preventing any late-payment penalties. And, with EFTPS, you can schedule payments for multiple types of taxes (e.g., estimated taxes, payroll taxes). Direct Pay limits scheduling payments in advance to 30 days, and only one payment can be scheduled.

3. Unlike Direct Pay, EFTPS is available to use at all times

Because EFTPS operates 24 hours a day, seven days a week, you can schedule or make payments at your convenience. If, for any reason, you lose access to the internet, you can still use EFTPS via the telephone. Direct Pay is only available Monday through Saturday from midnight to 11:45 p.m. ET, and Sunday from 7 a.m. to 11:45 p.m. ET. What's more, the IRS warns that outages may occur with Direct Pay.

4. EFTPS accepts larger payments than Direct Pay

EFTPS can be used for larger payments than Direct Pay accepts. For example, Direct Pay limits you to two payments within a 24-hour period, and each payment must be less than $10 million. In contrast, EFTPS accepts payments without regard to frequency or size.

How to enroll in EFTPS

If you're a new business, it's likely that when you applied for your Employer Identification number (EIN), you were automatically pre-enrolled, if there was an indication that you'd be making federal payroll tax deposits. If so, a letter was sent to the business with the EFTPS PIN (if one was not received, it can be obtained by calling 800-555-3453).

If you've been in business and haven't yet enrolled but want to do so, it's simple to learn how to enroll in EFTPS online: Just go to EFTPS.gov, click ENROLL, and follow the instructions. You'll receive your PIN via the U.S. Postal Service within five to seven days. If you want to make a payment before the PIN is received, you can do so by telephone at 800-555-4477.

Information you'll need to enroll

To enroll in EFTPS, you need certain information:

  • Banking account number and routing number. For EFTPS to withdraw your payment from your bank account, you must provide the account number as well as the nine-digit routing number. Note: If you change bank accounts — for purposes of a single payment or permanently — you can change the information by logging in to EFTPS, going to the FAQ section, clicking on "How do I change my banking information," and following the instructions.
  • Taxpayer Identification number (TIN). If you are enrolling your business, provide your EIN. If you're a business owner enrolling individually so you can pay your income taxes and make estimated tax payments, use your Social Security number (SSN).
  • Name and address. Provide your name and address as it appears on your tax return. For example, if you're using EFTPS to deposit payroll taxes, this would be your business name and address.

Enroll in 3 easy steps

Individuals are not required to enroll in EFTPS but are encouraged to do so. Corporations must make all deposits of their federal taxes (e.g., employment tax deposits, estimated corporate tax payments) via electronic funds transfers, and EFTPS is the best way to handle these transactions. Enrollment is an easy three-step process.

1. Select and submit enrollment at the EFTPS website

As your first step to enroll, click on the ENROLL button on the home screen of EFTPS.gov and submit all required information (e.g., name, address, TIN). Once you've done this, you'll be sent a PIN number in the mail; it can take up to seven days to receive your PIN.

2. Create a password and verify your banking information

Once you've received your PIN, you can create your own password for access to EFTPS.gov. To do this, log on to EFTPS.gov with your PIN and then create an acceptable password. Each time you use EFTPS, you need both your PIN and password.

3. Make an initial EFTPS payment

Your final step is to make a payment. Just select the "Make Payment" button. You'll be asked to choose the type of payment and then describe the date you want funds transferred.

If you need to make a payment before you've received your PIN, you can do so by telephone.

Usually, payments through EFTPS aren't processed the same day. If you're on a payment deadline, the IRS explains how to arrange for a same-day wire payment.

Is EFTPS safe?

Because of the multistep authentication process for using EFTPS, it's extremely safe. There haven't been any reports of hacks to EFTPS.

Confirmation of EFTPS payments by mail or email

Taxpayers can opt to receive email confirmation of payments, which is a new service initiated by EFTPS in response to taxpayer requests for it. But you should be aware of possible email scams. EFTPS will send emails only to those who have requested email confirmation.

What is EFTPS' future?

EFTPS has been in operation for more than 20 years and has a solid record of good service and taxpayer security. What's more, it provides many conveniences, including pre-scheduling payments and making them online or by telephone. Finally, EFTPS listens to complaints and has been responsive to them by making updates to their site, which means that EFTPS can only get better in the future.

Barbara Weltman is a tax and business attorney and the author of J.K. Lasser's Tax Deductions for Small Business as well as 25 other small business books.
This website contains articles posted for informational and educational value. Paychex is not responsible for information contained within any of these materials. Any opinions expressed within materials are not necessarily the opinion of, or supported by, Paychex. The information in these materials should not be considered legal or accounting advice, and it should not substitute for legal, accounting, and other professional advice where the facts and circumstances warrant.