EFTPS.

• Author: Laffie, Lesli S.

For fiscal year 1999, Sec. 6302(h) requires 94% of employment and other depository taxes to be collected by the electronic funds transfer payment $50,000 or more. Now, proposed regulations (NPRM REG-100729-98, 3/23/99) increase the deposit threshold to $200,000 in aggregate Federal tax deposits during a calendar year. The increase will allow small businesses to transition to the EFT system at their own pace.

Initially, the new threshold would be applied to 1998 deposits. Depositors that exceed the 1998 threshold would have to make EFT deposits in 2000 and subsequent years. Depositors that first exceed the threshold in 1999 or later would be required to use EFT after a one-year grace period. Depositors exceeding the threshold would not be allowed to resume making paper coupon deposits if they fall below the $200,000 threshold in a subsequent year.

Depositors currently required to deposit by EFT would be granted a fresh Start and would not have to use EFT unless they exceed the $200,000 threshold in 1998 or thereafter. Under the new rules, only 9% of all businesses making Federal tax deposits would have to deposit by EFT. The fresh start would allow 65% of the depositors currently subject to the EFT requirement to resume making paper coupon deposits beginning in 2000.

Current regulations prescribe one threshold ($50,000 in employment taxes) for depositors liable for employment taxes and a separate threshold ($50,000 in other taxes) for depositors with no employment tax liability. Thus, persons who deposit employment taxes (but do not exceed the applicable $50,000 threshold) are not subject to the EFT requirement, even if they deposit large amounts of other depository taxes.

The proposed rules adopt an aggregate deposits test that would be simpler and easier to administer than the two-threshold test, and eliminate the...