The IRS has issued proposed regulations to expand the making of electronic tax deposits. The regulations would eliminate the use of paper-based federal tax deposit (FTD) coupons after 2010. The existing rules for making electronic deposits would otherwise generally remain unchanged.

Currently Taxpayers whose aggregate annual deposits of certain taxes exceed $200,000 are generally required to use electronic funds transfer (EFT) to make FTDs. Taxes taken into account in determining whether the $200,000 threshold has been met include but are not limited to withheld income and FICA taxes, corporate income and estimated taxes, FUTA taxes, and excise taxes, as well as others. Once taxpayers exceed the $200,000 threshold, they have a one–year grace period before being required to use EFT, and then they are required to use EFT in all later years even if their deposits fall below the threshold. The Electronic Federal Tax Payment System (EFTPS) is the EFT system currently used by IRS to collect FTDs.

Taxpayers not currently required to use EFTPS for deposits may instead use the paper-based FTD coupon system to make a deposit by presenting a check and an FTD coupon to a bank teller at one of the financial institutions authorized to be a government depository or financial agent. The proposed regulations would eliminate the option for making federal tax deposits by paper coupon after 2010 because the paper coupon system will no longer be maintained by the Treasury Department after Dec. 31, 2010. The proposed regulations would require all of the following to be deposited via EFT:

• Corporate income and corporate estimated taxes;

• Unrelated business income taxes of tax-exempt organizations;

• Private foundation excise taxes;

• Taxes withheld on nonresident aliens and foreign corporations;

• Estimated taxes on certain trusts;

• FICA taxes and withheld income taxes;

• Railroad retirement taxes;

• Nonpayroll taxes, including backup withholding;

• Federal Unemployment Tax Act (FUTA) taxes; and

• Excise taxes reported on Form 720, Quarterly Federal Excise Tax Return.

Some businesses paying a minimal amount of tax could, however, continue make their payments with the related tax return, instead of using EFTPS.