Electronic Payroll Tax Filing Looms for American Businesses

Incentives, Government/Industry Partnership Urged To Speed, Smooth Transition

DALLAS, TEXAS - 3/13/00 - Millions of U.S. businesses already pay their payroll taxes electronically. But another hurdle - electronic filing - is on the horizon.

"The IRS wants to make e-filing of payroll tax returns a reality for up to six million U.S. companies by 2003," says Fran Bartlett of Federal Liaison Services, Inc. (FLS), a leading employer compliance company. Bartlett serves on the Electronic Tax Administration Advisory Committee (ETAAC), which is helping the IRS plan its strategy for making electronic filing the preferred method of filing tax and information returns.

Incentives are the key to increasing electronic filing, Bartlett believes. "One huge incentive that we recommended for businesses would be allowing an additional month to file if it's done electronically," she says. "Any business would welcome a later deadline for tax filing. Another carrot would be to open the IRS infrastructure, allowing businesses filing electronically to use the Web to view records in their accounts. Currently, copies of records must be requested by mail, and take six weeks to be received." If approved by Congress, some incentives for e-filing could begin this year.

The Internal Revenue Service is also likely to partner with the software industry to make electronic filing a reality, Bartlett says "In time, an IRS Web page for business taxpayers would list certified software developers that offer electronic filing solutions."

Two other IRS initiatives are planned this year: a pilot program to resolve tax disputes over the Internet, and making a taxpayer's data available electronically within 24 hours. The IRS has said it plans to work with companies that provide e-filing, partnering with them as value-added resellers. Plans call for a web site accessible only to IRS-designated electronic originators, including incentives for electronic filing as part of the strategy.

Right now, service bureaus handle what little electronic filing is done for businesses. Service bureaus account for only a small fraction of the volume of business taxpayers. Despite being offered free electronic filing of payroll taxes as part of a service bureau's payroll package, it's estimated that only 10% of even the largest companies file electronically.

Even giving e-filing software away hasn't proved an incentive for businesses to file electronically. "That's all the more reason to up the ante with incentives such as additional filing time, electronic access to records, and online software suites available only to e-filers that partner with the IRS," Bartlett says.

Bartlett encourages companies to begin the process now, for one simple reason: there's plenty of help available in IRS e-filing test groups.

The Internet is helping drive tax compliance, Bartlett says. "The private sector has the expertise to build the infrastructure, interfaces and Web pages the IRS wants. It's important to avoid duplication of effort - government doesn't need to build what's already available in the private sector, such as interfaces and software solutions."

The best of the new payroll tax compliance products now available include modules for electronic payments and electronic filing via the Web. The U.S. Treasury Department's FEDTAX II system is a Web-native solution for the payment and reporting of about $40 billion in payroll taxes by more than 300 federal agencies.

Bartlett recognizes that widespread electronic filing by businesses may come slowly. Currently, most businesses find it easier to print, sign and mail a payroll tax return.

"With the right incentives, and with technology as a catalyst for change in government and business, e-filing will increase," Bartlett says. "If recent history is any lesson, electronic filing may occur more quickly than Corporate America would prefer, but not as fast as Uncle Sam would like."

About Federal Liaison Services, Inc. (FLS)

Federal Liaison Services, Inc. is the leader in employer compliance software and services. FLS automates the tasks of payroll tax payments and filings, wage garnishment processing, and W-2 and 1099 processing. Clients include more than 400 companies ranked in the Fortune 1000, as well as several major agencies of the federal government.

Visit FLS online at www.flsinc.com or call 972/239-8881; fax 972/239-9540. The company's headquarters are located at 12001 N. Central Expressway, Suite 700, Dallas, TX 75243-3715.