The United States Department of the Treasury and Internal Revenue Service (IRS) both provide two very well-known electronic tax payment programs for federal tax: Direct Pay and the Electronic Federal Tax Payment System (EFTPS). Both are convenient and secure mediums to pay tax but serve differently and have other functionalities. The taxpayers should have knowledge about what is the difference between these two systems so they can select an appropriate one based on their requirement for tax payment.
Overview of Direct Pay
Direct Pay is an IRS free feature through which an individual can directly pay tax from his/her savings or checking account without having to go through the registration procedure. It is primarily used for personal income tax and estimated tax and is ideally suited for single payment or if one wants an immediate payment. Direct Pay provides confirmation of payment and voluntary email reminders and is quite simple for taxpayers to monitor payments effortlessly.
Key Direct Pay features
- No enrolment: Taxpayers do not need to enroll in the system to use Direct Pay.
- Same-day payments: The payments are made on the same day, thus ideal for prompt payment of tax.
- Limited scheduling of payments: Payments can be scheduled up to a maximum of 30 days ahead.
- Payment limit: Each payment has a maximum limit of $10 million.
- No history record: No history of payments is stored.
Introduction to EFTPS
The Electronic Federal Tax Payment System (EFTPS) is an all-service system provided by the Department of the Treasury through which individuals and organizations can pay several types of federal taxes, such as income tax, payroll tax, and excise tax.
Advance registration is necessary for EFTPS, in which a person has to obtain a Personal Identification Number (PIN) through mail, but once registered, taxpayers are able to effectively make their tax payments.
Most important features of EFTPS
- Registration required: Registration is mandatory prior to using the system.
- Advance payment scheduling: Payments can be scheduled 365 days in advance for businesses and 120 days for individuals.
- No payment limit: No payment size limit, which is excellent for big transactions.
- Payment history: Payment history is accessible to users.
- 24/7 access: Can be accessed at any time, including by phone.
Choosing between Direct Pay and EFTPS
- For individuals: Direct Pay is perfect for paying occasional income tax in installments without enrolling in a system. It is convenient and simple.
- For businesses: EFTPS is more suitable as it can account for different kinds of taxes, make advance deposits, and account for big amounts.
In short, both Direct Pay and EFTPS are safe and convenient ways to pay federal taxes, but for different reasons. Direct Pay is best for those who need to make immediate, single payments without registration, while EFTPS is more flexible and appropriate for businesses and individuals with complicated tax requirements. Understanding the differences allows taxpayers to choose the most appropriate method for their own use.
Read more: What happens if you owe the IRS more than $10,000? What to do next?
Read more: How to declare online marketplace earnings to the IRS
