Online Tax Payment and Filing for Small Businesses

This article is a reprint of Wise Bread's contribution to OPEN Forum from American Express -- where small business owners can get advice from experts and share tips with each other.

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The IRS wants businesses to pay their taxes online, as well as file their taxes online. It's faster, eliminates the need for the IRS to have people open envelopes and process paperwork and has been running for more than a decade.

The Electronic Federal Tax Payment System

The Electronic Federal Tax Payment System (or EFTPS) offers taxpayers the technology to make payments online. You can submit all federal taxes through the system, either online or by phone. That includes quarterly estimated taxes — even if you wish to make payments weekly, monthly or quarterly. The payment is deducted from your bank account and sent to the Department of Treasury. You can even schedule payments ahead of time if need be.

EFTPS has been in place since 1996. In that time, more than 901 million electronic payments have been made through it. You will need to enroll online to use it; the site uses the highest level of security available and requires you to use a secure browser with 128-bit encryption in order to access it. Since not only will you be submitting your EIN or Social Security number through the site, but also information about your bank account, that level of security is reassuring.

It is free to submit payments through EFTPS. Some payroll processors will handle payroll tax payments through EFTPS, although you'll need to check with any processor that you work with to see what fees and special instructions it will need to make payments on your behalf.

Signing up for EFTPS is a relatively simple process. You will need your taxpayer identification number (depending on the type of business you operate, that may be your EIN or your Social Security Number), the routing transit number for your bank and the account number from which you will be making your tax payments. You can complete the enrollment process online. You can also complete your enrollment on paper with IRS Form 9779. Once you've finished the enrollment process, you will receive a personal identification number in the mail. You can use that number to complete payments by phone; in order to make payments online, you'll need to to also create an internet password.

Once you have your EFTPS account set up, you can make payments to the IRS through EFTPS. You will schedule payments, which will then be transferred from your bank account to the Department of Treasury's account. When the transaction is complete, the IRS' records will be updated with your payment. If necessary, you can cancel a payment or check up to 16 months of your payment history online.

The eFile System for Business and Self-Employed Taxpayers

The IRS actually maintains what amounts to two separate eFile systems, built to process individual and business tax returns separately. In most cases, as a business owner, you won't use eFile directly. Instead, your tax preparer has the option of submitting your returns through the eFile system. The eFile system offers faster refunds, as well as a reduction in the paperwork necessary to complete a tax return. If your taxes are completed early, but you aren't ready to pay the balance of your 2009 tax bill, the IRS offers a "file now and pay later" option to any taxpayer using the eFile system. You can file your taxes now and get that off your plate, but wait to make a payment until the calendar day before April 15 (assuming you're also using EFTPS).

The IRS maintains a list of eFile providers for business taxpayers online. Different providers handle different forms and it is worth noting that for corporations, partnerships and non-profits, a provider who can handle Modernized eFile (MeF) internet filings, is necessary. Just because a provider is listed on the IRS site, however, does not mean that it is endorsed by the IRS. It's still important to double check any tax service provider yourself.a

The eFile system is available for services beyond submitting your tax return. If you work with a payroll service provider to handle payroll for your employees, that company is likely able to file the related tax forms through eFile.

The Benefits of Handling Your Taxes Online

If you've ever realized that you were about to miss making a quarterly estimated payment, EFTPS is a particularly useful tool. As long as you submit your payment one calendar day prior to the due date, it's considered in on time. You can submit your payment at any time and from anywhere with an internet connection. Whether you're on vacation or you just can't get into the post office because it's a Sunday, EFTPS always offers an alternative. It is possible to make a same-day wire payment through EFTPS, if necessary, although it can come down to the capabilities of your bank as to whether the payment will actually arrive the same day.

Online submissions of both your business tax return and your tax payment speeds up processing time significantly. While the cost of a stamp and an envelope isn't particularly high, EFTPS eliminates the need to spend time on either. Many states now also offer systems similar to EFTPS, making it possible to handle the majority of your taxes online.

You may find that eFile also cuts your expenses, and it has been shown that tax returns filed through eFile typically contain fewer errors. That is due to the fact that many tax preparers offering eFile use software that allows them to directly input your company's tax information — there's no copying information between different forms. The IRS has also built in additional checks within the eFile system, which makes it easier to catch and resolve a problem with a tax form without the IRS needing to send taxpayers error letters. You will also receive confirmation within 48 hours that the IRS has received your business' tax return through eFile.