Businesses withhold or pay a variety of federal taxes, such as FICA, FUTA, and corporate income taxes. Businesses have historically been required to deposit these taxes in a government depository (e.g., a commercial bank or savings institution) and accompany each deposit with a paper coupon. The bank processes the coupon information and forwards it to the federal government.

Congress enacted section 6302(h) of the Internal Revenue Code in 1993 to require the IRS to implement an electronic funds transfer system to largely replace the paper coupon system. Congress wanted this system to be a simple, paperless way for taxpayers to make federal tax deposits as easy as using a telephone for certain payment options. Treasury and the IRS complied with Congress' directive by developing the Electronic Federal Tax Payment System (EFTPS).

Section 6302(h) requires the IRS to phase-in EFTPS from 1994-1999 by collecting electronically a statutorily specified percentage of total business taxes in each year.

To comply with section 6302(h), the IRS sent letters to approximately 1.2 million taxpayers in late June/early July to inform them of their obligation to begin making their federal tax deposits electronically by January 1997 and thus avoid penalty assessments for failing to use the system. Due to a recently enacted legislative change taxpayers now have until July 1, 1997, to learn about, enroll and begin using EFTPS. After January 1, 1998, penalties will be asserted if taxpayers fail to meet their electronic payment obligation.

The IRS is aware that many taxpayers have questions about EFTPS and their obligation to make federal tax deposits electronically. This fact sheet provides basic information on EFTPS and answers the most frequently asked questions. Taxpayers may also call special toll-free numbers for information on EFTPS enrollment and payments: 1-800-555-4477 and 1-800-945-8400 (taxpayers may call either one).

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