Electronic Tax Filing | Mobile HR

ADP Research Institute®

Electronic Tax Filing: Technology Advances Accelerate Employers’ Transition to e-Filing and e-Payment

This insight is from: "Trends in Electronic Filing and Deposit Mandates for Employers"



Advances in technology and widespread Internet use are propelling a march toward all electronic tax filing and deposit payments at the federal, state, and local levels, creating challenges for employers. Even for businesses that operate in only one state, various agencies are likely to have separate electronic tax filing systems for different payroll taxes and withholdings; this complexity increases exponentially for employers doing business in multiple states. Equally challenging is the migration from paper or magnetic media-based employment tax returns to using a government website or a third-party software program or service. The greatest challenges, however, are faced by employers that handle payroll processing and tax reporting and depositing on their own and have to comply with ever-increasing e-filing and e-payment mandates. This paper discusses trends in electronic tax filing requirements, compares in-house to outsourced payroll processing and tax filing, and provides tips for evaluating third-party payroll service providers.

Bringing it All Online: IRS Pushes to Accelerate Electronic Tax Filing and Deposits by Employers

Employers must accept the fact that electronic tax filings and payments are here to stay. As of January 1, 2011, the Internal Revenue Service (IRS) eliminated Form 8109, the last link with paper tax deposit coupons, forcing employers to use the Electronic Federal Tax Payment System (EFTPS) for all deposits, including payroll taxes. As the IRS pushes to meet its 80 percent e-filing goal, businesses have two choices: 1) dedicate significant resources to administering payroll processing, reporting and depositing in-house or 2) outsource these operations to a third-party payroll service provider.

Fragmented State Electronic Tax Filing Rules and Systems Present E-Filing Complexities

More and more state-implemented e-filing and e-payment mandates are lowering the electronic tax deposit threshold, thereby forcing smaller businesses to move to electronic tax filing and placing greater additional administrative burdens on in-house payroll departments. The varying rules that apply beyond employment tax and unemployment, such as those governing child support remittances, make it all the more challenging for employers to comply with state electronic tax filing and remittance mandates. In addition, advances in electronic technologies have led states to develop entirely separate reporting systems and requirements, dramatically increasing complexity for businesses that operate in multiple states.

Pros and Cons: In-House vs. Outsourced Payroll Processing and Tax Filing

When considering the outsourcing of payroll processing and tax filing, employers should start by assessing in-house staff capabilities and infrastructure. Cost and the ability to keep up with evolving government requirements are key considerations. Furthermore, as states add more information to existing employer reporting mandates, the process of identifying legislative changes and modifying existing systems and workflows is becoming increasingly burdensome for employers that handle payroll functions in house. 

What to Look for in a Third-Party Payroll Service Provider

When evaluating third-party payroll service providers, it’s critical that employers understand each party’s roles and responsibilities. Even if the third-party provider contractually agrees to process the employer’s payroll, remit payroll taxes to designated jurisdictions, and file the related tax returns, the employer still bears ultimate responsibility and liability for all deposits and tax returns.  A payroll service provider’s security capabilities and procedures are another top concern since electronic tax filing can potentially expose highly sensitive financial and employee information. Finally, employers should check out a payroll service provider’s online compliance tools and resources, including forms, e-file requirements, filing and deposit calendars, and  newsletters that provide timely insights into reporting issues and best practices.

Impact of Electronic Tax Filing and Deposit Mandate on Payroll Administration

Even with the push to simplify electronic deposit and return requirements at the federal, state, and local levels, a lack of consistency in agencies’ thresholds, methods and formats continues to challenge employers.  As they plan for the future, employers should carefully assess whether they have the procedures and systems in house to navigate this complex, ever-changing landscape and ensure accurate, consistent, and cost-effective compliance with increasing e-filing and e-payment mandates.

*A complete list of sources and citations can be found in the full report.

About This Report: Report data and conclusions are based on a recent HR/Benefits Pulse Survey conducted by the ADP Research Institute, a specialized group within ADP that provides insights for leaders in both the private and public sectors around issues of human capital management, employment trends and workforce strategy. See full report for details on research methodology.

Keywords: HR Management, Mobile Technology

Business Types: Research for Small Organizations, Research for Midsized Organizations, Research for Large Organizations

Roles: Research for Human Resources Professionals

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