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Originally Posted On: https://solutions.tax-guard.com/resources/post/irs-payment-options/
We’re often asked how to make a lump-sum payment to the IRS. Though, there’s another question that should be answered first. Can the business or individual (a) stroke a check to the IRS without (b) adversely affecting cash flow? If the answer is “yes,” paying off the liability is smart because doing so avoids additional penalties and interest. However, if making the lump-sum payment will result in falling behind with other obligations, or it’s just not possible, there are preferable alternatives. For example, we can secure a reasonable repayment arrangement based on what the business can afford (as opposed to the IRS dictating terms based on an arbitrary amount or timeframe). But in the slim chance that a business can afford a lump-sum payment, there are several options for getting money to the IRS.
Option 1. EFTPS
The best option, by far, is the Electronic Federal Tax Payment System®, more commonly referred to as “EFTPS.” EFTPS is available for both businesses and individuals and is the preferred method of payment by the IRS. Note: EFTPS is the only option for businesses to make current federal tax deposits (payments on back taxes can be made as well). Individuals can use EFTPS to make payments on current and back taxes.
How it works: Go to https://www.eftps.gov, provide identity and bank information, and wait about a week for a PIN to arrive in the mail. Once enrolled, log in, click on “Make a Payment,” and follow the instructions to authorize an ACH transaction from your bank account. There is no cost to use this option (unless you ask your bank to initiate the transaction, which shouldn’t be necessary).
- Be sure to select the correct tax type, year, and period when making the payment (e.g., “941 2022 Q1”).
- When making federal tax deposits, e.g., 941 deposits, schedule the payment at least 24 hours ahead of the due date (it takes a day to process the payment; otherwise, all the deposits will be one day late and accrue late deposit penalties).
- When paying back taxes, pay one period of liability at a time.
- Keep confirmation of the payment for your records.
Option 2. Direct Pay
This option is available only to individuals. The IRS includes a notice on the site indicating, “Business Taxes? All business tax payments should be made through the Electronic Federal Tax Payment System (EFTPS).” One-time payments (there’s no need to create an account) can be made on balances due, installment agreements, and amended returns and tax extensions.
How it works: Go to https://www.irs.gov/payments/direct-pay, click on the “Make a Payment” button, verify your identity and bank information, and authorize an ACH debit from your bank account. There is no cost to use this option.
- Be sure to select the correct tax type, year, and period when making the payment (e.g., “1040 2020 Q4”).
- Pay one period of liability at a time.
- Keep confirmation of the payment for your records.
Option 3. Send a Check
Electronic payment options, including EFTPS and Direct Pay, are the most convenient ways to pay federal taxes. They are processed much faster and there’s a record of the transaction. However, there are some circumstances where mailing a check makes sense, e.g., a third party is making the payment on your behalf.
How it works: Make out a check to “US Treasury” and send it to the IRS.
- If you have a Revenue Officer, coordinate the payment terms (amount, address, lien release, etc.) with him/her.
- If you receive a notice from the IRS, tear off the stub on your notice/bill and include it with the check in the IRS’s return envelope, if provided.
- If you don’t have a Revenue Officer or a notice from the IRS, you can, in theory, obtain the payoff amount, address, etc. by calling the IRS at 800-829-1040 for individuals or 800-829-4933 for businesses. Note: hold times are long – sometimes as much as an hour, there’s a good chance of being disconnected, and there’s a good chance of receiving incorrect information.
- We recommend our clients use a certified or bank check as opposed to a regular check. The IRS can process and confirm payment much faster (there’s no need to wait for the check to clear), which is important when time is of the essence. Additionally, there’s no chance that the check could bounce. Because of the pandemic, processing times on checks have gone from weeks to months, which is a long time to monitor the bank account and ensure the IRS’s check will clear.
- If there are multiple periods of liability, send one check for each period.
- Make your check or money order payable to “US Treasury.”
- In the memo field, include (a) the primary social security number (SSN) or employer identification number (EIN), (b), the tax year and period, (c) the form number, e.g. EIN: 12-3456789, 2021 Q4 941.
- Ensure your name, address, and telephone number are on the payment.
- Do not send cash.
- Send the check via certified mail or an express courier via a reliable system for tracking the package. Keep copies of the check and tracking information for your records.
Option 4. Send a Wire
In theory, this is an option for individuals and businesses (current and back taxes, though federal tax deposits must be made using EFTPS only – see above). The benefit is that the IRS receives its money the same day (EFTPS has a lag time of one day and Direct Pay has a lag time of two days). Note: the same-day receipt depends on the cut-off time for the wire. The IRS has a cut-off time of 5:00 ET, so the bank’s cut-off is likely earlier than that to account for processing time. The downside of using a wire is its complexity – the worksheet is difficult to complete correctly. We’ve had a few lenders who have attempted to wire funds to the IRS on behalf of mutual clients. In those situations, Revenue Officers were unable to locate the payments and apply them against the businesses’ delinquent taxes.
How it works: Go to https://www.irs.gov/payments/same-day-wire-federal-tax-payments, download and complete the “Same Day Taxpayer Worksheet,” present the completed worksheet to your bank and ask them to initiate the wire. Your bank will likely charge you a fee for the wire.
- Per the Financial Institution Handbook, “[s]ame-day tax wires are intended only for extraordinary circumstances in which a payment cannot be scheduled earlier.” Because these transactions are uncommon, there’s a very good chance that your bank won’t have any experience processing a same-day wire.
- If you are paying for more than one tax form or tax period, complete a separate worksheet for each payment.
Option 5. Credit or Debit Card
Individuals can use this option to pay current and back taxes. Businesses can use this option only for paying back taxes (current quarter federal tax deposits must be paid using EFTPS – see above). This option may make sense for smaller payments or balances due, but it should probably be considered an option of last resort.
How it works: Go to https://www.irs.gov/payments/pay-your-taxes-by-debit-or-credit-card, choose one of the IRS’s three independent payment processors, then provide the payment amount, your card information and other data. The processor sends the money to the IRS (and will collect a fee from you in return).
- There are substantial fees associated with each credit card transaction. The processor takes between 1.96% and 1.99% of the payment, with the minimum fee between $2.50 and $2.69, depending on the processor.
- While the fees associated with a debit card transaction are much smaller (between $2 and $3.95 per payment), using the Direct Pay method above doesn’t involve a third party and costs nothing.
- Involving a third party – the credit card processor – in the transaction can add unnecessary complications. One of our clients made a credit card payment that was not received by the IRS. She communicated with the credit card processor for about two months before she was finally able to resolve the issue.
Processing Times and Transcripts
After making a payment, we are frequently asked, “when will we see the payments reflected?” The answer depends on how the payment was made. Payments through EFTPS will be reflected quicker than payments made by check. Given the backlog and staffing shortages at the IRS, processing times for opening mail and cashing checks have increased substantially. Payments made by EFTPS show up on a transcript within a week or so. Prior to the pandemic, payments by certified funds would routinely take 30 days or so to process and appear on a transcript. Since the pandemic, it’s taking considerably longer. And, regular checks take substantially longer than certified funds to be reflected on the transcripts.