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Mandatory Electronic Federal Tax Deposits

© by Greta P. Hicks, CPA

In 1993, the North American Free Trade Agreement Implementation Act (NAFTA) mandated the electronic collection of federal depository taxes. In July 1994, the IRS issued regulations which phased in electronic fund tax payments (EFTPS) by businesses and individuals. Under this system, you would stop writing checks to the IRS and instead you will make your tax deposits electronically. The system is designed to make tax payments easy, quick, precise and paperless.


The Treasury department developed EFTPS for several reasons. Increasingly, businesses and individuals rely upon and prefer electronic financial transactions. From a tax administration viewpoint, financial transactions conducted electronically are quick and precise, precluding the errors associated with preparing and processing paper. Finally, and this is always a good reason, government gets its money quicker.

What Is EFTPS?

EFTPS is the electronic tax payment system that the federal government uses to accept all electronically transmitted tax payments. EFTPS will accept all types of tax payments from both businesses and individuals.

EFTPS will use two government designated Treasury Financial Agents (TFAs) to process tax payments, First Chicago/Mercantile Services and NationsBank. (See list of designated TFA by state.)

How Does EFTPS Work?

Payments made through EFTPS use the Automated Clearing House (ACH) financial network which transfers funds and passes tax payments information to the IRS. (See the enrollment section.)

Who Must Use EFTPS?

Under the original regulations, the requirement to begin EFTPS deposits was based on the taxpayer’s total deposits of the taxes imposed by chapters 21 (FICA taxes), 22 (railroad retirement taxes) and 24 (income tax withheld at source) of the Internal Revenue Code during certain "determination periods.(See chart opposite page.) If the taxpayer’s deposits of those taxes during a determination period exceed a prescribed dollar threshold, the taxpayer must begin to deposit by EFTPS on and after the applicable effective date prescribed in the temporary regulations, unless otherwise exempted.

Notice 96-10 extended EFTPS to ALL taxes; payroll, corporate income, and estimated; once an you exceed the $50,000 or $20,000 threshold.

Any business desiring to making federal tax deposits electronically prior to their required date, may volunteer to become an early participate in this program. For enrollment information and applications, call the EFTPS Customer Service of your TFA. You may also call your local IRS Electronic Filing office.

Effective Date Delayed

Because the IRS got a late start on notifying business and banks, the mandatory EFTPS date has been moved to January 1, 1998. The IRS announced this change in Notice 96-10, Revenue Procedure 96-10. The Treasury Department’s Financial Management Service is working directly with the banking industry to ensure that the system and service providers will be ready. (See Chart #__ for Effective Dates.)

When the EFTPS system is certified, a letter and EFTPS enrollment information will be sent to all businesses that meet the $50,000 deposit threshold in 1995, in 1996 and all current users of the IRS TaxLink system. When up an running, EFTPS will be available to all individual and business taxpayers.

What Are The Payment Methods?

You must choose the ACH Debit or ACH Credit method of payment.

Those choosing the debit option will initiate each payment by instructing your TFA to withdraw funds from you bank account and route them to the Treasury’s account at the Federal Reserve Bank. You can contact your TFA and enter payment information by rotary or touch-tone telephone, personal computer and voice operator. ACH Debit automatically gives the you a confirmation number.

If you choose the ACH Credit method, you will contact your own bank and provide the tax deposit information. Then the bank initiates the ACH transaction to the Treasury’s Federal Reserve Bank account. ACH Credit users will find their ACH trace number of their monthly bank statement.

How Do I Enroll In EFTPS?

The payment method you choose will determine the enrollment process.

If you choose ACH Debit to make your payments, contact your TFA for enrollment forms. Business taxpayers are being asked to enroll with the TFA located in the area where they make their Federal Tax Deposits.

If you choose ACH Credit to make you payments, you will need to contact the TFA and your local financial institution.

It is recommend that you begin the enrollment process by November 1 or the year before you are required to begin EFTPS.

Do I Have To Enroll?

Yes, you must enroll using an EFTPS Enrollment Form.

The IRS is currently mailing letters to businesses advising taxpayers they must make their tax deposits using the EFTPS. If you qualify and fail to receive information from the IRS, call the TFA Customer Service Center to request an enrollment form. The numbers are:

First Chicago/Mercantile Service:       1-800-945-8400

NationsBank:                                       1-800-555-4477

Why Do You Have To Enroll?

You need to enroll so that financial agents can validate taxpayer data with IRS and the bank data with the ACH system.

How Long Is The Enrollment Process?

You should allow ten weeks for completion of the enrollment process and for resolution of any problems that may occur. Actual enrollment time was planned to be an average three to six weeks but the process is currently taking much longer.

Can The IRS Enroll Me In EFTPS?

No, you must enroll with one of the TFAs. Some of the information needed to enroll in EFTPS is based on your payment method preferences, bank account information, and your existing business systems. Only you can judge the impact of various payment methods on your business. You must sign the form which authorized the TFA to initiate the funds transfer.

Are There Any Fees?

The IRS does not charge fees for this service. Depending upon the taxpayer’s banking arrangement, there may or may not be a fee for ACH Debit and/or ACH Credit transactions. You should check with your bank to find out what fees, if any, you will be charged.

What Should You Do NOW?

  • Call the IRS 1-800-TAX-FORM and order Publication 966 which is a booklet that will answer most of your questions on the Electronic Federal Tax Payment System.
  • Call your local IRS office and ask for the District Alternative Ways of Filing Office or the Electronic Filing Coordinator to secure educational materials or speaker.
  • Call your Federal Transfer Agent, FTA, to get the enrollment forms and information.
  • Ask your bank for educational materials.

Scheduled Phase In Of EFTPS

Threshold Amount
More Than
$47 Million 1993/94 1-1-96 n/a
$50 Thousand 1995 1-1-97 7-1-98
$50 Thousand 1996 1-1-98 7-1-98
$20 Thousand  1997 1-1-99 7-1-98

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GRETA P. HICKS, CPA and former IRS manager, concentrates in solutions to IRS problems and advises business and tax professional on IRS policies and procedures. Ms Hicks is owner of TAX SOLUTIONS, Inc., a company providing educational materials and programs on solutions to IRS problems and is a nationally known speaker and writer on solutions to IRS problems. To arrange for consultation contact: Greta's web site:


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